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State of the Union Addresses of William H. Taft



The addresses are separated by three asterisks: ***

Dates of addresses by William H. Taft in this eBook:

  December 7, 1909
  December 6, 1910
  December 5, 1911
  December 3, 1912



***

State of the Union Address
William H. Taft
December 7, 1909

The relations of the United States with all foreign governments have
continued upon the normal basis of amity and good understanding, and are
very generally satisfactory.

EUROPE.

Pursuant to the provisions of the general treaty of arbitration concluded
between the United States and Great Britain, April 4, 1908, a special
agreement was entered into between the two countries on January 27, 1909,
for the submission of questions relating to the fisheries on the North
Atlantic Coast to a tribunal to be formed from members of the Permanent
Court of Arbitration at The Hague.

In accordance with the provisions of the special agreement the printed case
of each Government was, on October 4 last, submitted to the other and to
the Arbitral Tribunal at The Hague, and the counter case of the United
States is now in course of preparation.

The American rights under the fisheries article of the Treaty of 1818 have
been a cause of difference between the United States and Great Britain for
nearly seventy years. The interests involved are of great importance to the
American fishing industry, and the final settlement of the controversy will
remove a source of constant irritation and complaint. This is the first
case involving such great international questions which has been submitted
to the Permanent Court of Arbitration at The Hague.

The treaty between the United States and Great Britain concerning the
Canadian International boundary, concluded April 11, 1908, authorizes the
appointment of two commissioners to define and mark accurately the
international boundary line between the United States and the Dominion of
Canada in the waters of the Passamaquoddy Bay, and provides for the
exchange of briefs within the period of six months. The briefs were duly
presented within the prescribed period, but as the commissioners failed to
agree within six months after the exchange of the printed statements, as
required by the treaty, it has now become necessary to resort to the
arbitration provided for in the article.

The International Fisheries Commission appointed pursuant to and under the
authority of the Convention of April 11, 1908, between the United States
and Great Britain, has completed a system of uniform and common
international regulations for the protection and preservation of the food
fishes in international boundary waters of the United States and Canada.

The regulations will be duly submitted to Congress with a view to the
enactment of such legislation as will be necessary under the convention to
put them into operation.

The Convention providing for the settlement of international differences
between the United States and Canada, including the apportionment between
the two countries of certain of the boundary waters and the appointment of
commissioners to adjust certain other questions, signed on the 11th day of
January, 1909, and to the ratification of which the Senate gave its advice
and consent on March 3, 1909, has not yet been ratified on the part of
Great Britain.

Commissioners have been appointed on the part of the United States to act
jointly with Commissioners on the part of Canada in examining into the
question of obstructions in the St. John River between Maine and New
Brunswick, and to make recommendations for the regulation of the uses
thereof, and are now engaged in this work.

Negotiations for an international conference to consider and reach an
arrangement providing for the preservation and protection of the fur seals
in the North Pacific are in progress with the Governments of Great Britain,
Japan, and Russia. The attitude of the Governments interested leads me to
hope for a satisfactory settlement of this question as the ultimate outcome
of the negotiations.

The Second Peace Conference recently held at The Hague adopted a convention
for the establishment of an International Prize Court upon the joint
proposal of delegations of the United States, France, Germany and Great
Britain. The law to be observed by the Tribunal in the decision of prize
cases was, however, left in an uncertain and therefore unsatisfactory
state. Article 7 of the Convention provided that the Court was to be
governed by the provisions of treaties existing between the belligerents,
but that "in the absence of such provisions, the court shall apply the
rules of international law. If no generally recognized rule exists, the
court shall give judgment in accordance with the general principles of
justice and equity." As, however, many questions in international maritime
law are understood differently and therefore interpreted differently in
various countries, it was deemed advisable not to intrust legislative
powers to the proposed court, but to determine the rules of law properly
applicable in a Conference of the representative maritime nations. Pursuant
to an invitation of Great Britain a conference was held at London from
December 2, 1908, to February 26, 1909, in which the following Powers
participated: the United States, Austria-Hungary, France, Germany, Great
Britain, Italy, Japan, the Netherlands, Russia and Spain. The conference
resulted in the Declaration of London, unanimously agreed to and signed by
the participating Powers, concerning among other matters, the highly
important subjects of blockade, contraband, the destruction of neutral
prizes, and continuous voyages. The declaration of London is an eminently
satisfactory codification of the international maritime law, and it is
hoped that its reasonableness and fairness will secure its general
adoption, as well as remove one of the difficulties standing in the way of
the establishment of an International Prize Court.

Under the authority given in the sundry civil appropriation act, approved
March 4, 1909, the United States was represented at the International
Conference on Maritime Law at Brussels. The Conference met on the 28th of
September last and resulted in the signature ad referendum of a convention
for the unification of certain regulations with regard to maritime
assistance and salvage and a convention for the unification of certain
rules with regard to collisions at sea. Two new projects of conventions
which have not heretofore been considered in a diplomatic conference,
namely, one concerning the limitation of the responsibility of shipowners,
and the other concerning marine mortgages and privileges, have been
submitted by the Conference to the different governments.

The Conference adjourned to meet again on April 11, 1910.

The International Conference for the purpose of promoting uniform
legislation concerning letters of exchange, which was called by the
Government of the Netherlands to meet at The Hague in September, 1909, has
been postponed to meet at that capital in June, 1910. The United States
will be appropriately represented in this Conference under the provision
therefor already made by Congress.

The cordial invitation of Belgium to be represented by a fitting display of
American progress in the useful arts and inventions at the World's Fair to
be held at Brussels in 1910 remains to be acted upon by the Congress.
Mindful of the advantages to accrue to our artisans and producers in
competition with their Continental rivals, I renew the recommendation
heretofore made that provision be made for acceptance of the invitation and
adequate representation in the Exposition. The question arising out of the
Belgian annexation of the Independent State of the Congo, which has so long
and earnestly preoccupied the attention of this Government and enlisted the
sympathy of our best citizens, is still open, but in a more hopeful stage.
This Government was among the foremost in the great work of uplifting the
uncivilized regions of Africa and urging the extension of the benefits of
civilization, education, and fruitful open commerce to that vast domain,
and is a party to treaty engagements of all the interested powers designed
to carry out that great duty to humanity. The way to better the original
and adventitious conditions, so burdensome to the natives and so
destructive to their development, has been pointed out, by observation and
experience, not alone of American representatives, but by cumulative
evidence from all quarters and by the investigations of Belgian Agents. The
announced programmes of reforms, striking at many of the evils known to
exist, are an augury of better things. The attitude of the United States is
one of benevolent encouragement, coupled with a hopeful trust that the good
work, responsibly undertaken and zealously perfected to the accomplishment
of the results so ardently desired, will soon justify the wisdom that
inspires them and satisfy the demands of humane sentiment throughout the
world.

A convention between the United States and Germany, under which the
nonworking provisions of the German patent law are made inapplicable to the
patents of American citizens, was concluded on February 23, 1909, and is
now in force. Negotiations for similar conventions looking to the placing
of American inventors on the same footing as nationals have recently been
initiated with other European governments whose laws require the local
working of foreign patents.

Under an appropriation made at the last session of the Congress, a
commission was sent on American cruisers to Monrovia to investigate the
interests of the United States and its citizens in Liberia. Upon its
arrival at Monrovia the commission was enthusiastically received, and
during its stay in Liberia was everywhere met with the heartiest
expressions of good will for the American Government and people and the
hope was repeatedly expressed on all sides that this Government might see
its way clear to do something to relieve the critical position of the
Republic arising in a measure from external as well as internal and
financial embarrassments. The Liberian Government afforded every facility
to the Commission for ascertaining the true state of affairs. The
Commission also had conferences with representative citizens, interested
foreigners and the representatives of foreign governments in Monrovia.
Visits were made to various parts of the Republic and to the neighboring
British colony of Sierra Leone, where the Commission was received by and
conferred with the Governor.

It will be remembered that the interest of the United States in the
Republic of Liberia springs from the historical fact of the foundation of
the Republic by the colonization of American citizens of the African race.
In an early treaty with Liberia there is a provision under which the United
States may be called upon for advice or assistance. Pursuant to this
provision and in the spirit of the moral relationship of the United States
to Liberia, that Republic last year asked this Government to lend
assistance in the solution of certain of their national problems, and hence
the Commission was sent.

The report of our commissioners has just been completed and is now under
examination by the Department of State. It is hoped that there may result
some helpful measures, in which case it may be my duty again to invite your
attention to this subject.

The Norwegian Government, by a note addressed on January 26, 1909, to the
Department of State, conveyed an invitation to the Government of the United
States to take part in a conference which it is understood will be held in
February or March, 1910, for the purpose of devising means to remedy
existing conditions in the Spitzbergen Islands.

This invitation was conveyed under the reservation that the question of
altering the status of the islands as countries belonging to no particular
State, and as equally open to the citizens and subjects of all States,
should not be raised.

The European Powers invited to this Conference by the Government of Norway
were Belgium, Denmark, France, Germany, Great Britain, Russia, Sweden and
the Netherlands.

The Department of State, in view of proofs filed with it in 1906, showing
the American possession, occupation, and working of certain coal-bearing
lands in Spitzbergen, accepted the invitation under the reservation above
stated, and under the further reservation that all interests in those
islands already vested should be protected and that there should be
equality of opportunity for the future. It was further pointed out that
membership in the Conference on the part of the United States was qualified
by the consideration that this Government would not become a signatory to
any conventional arrangement concluded by the European members of the
Conference which would imply contributory participation by the United
States in any obligation or responsibility for the enforcement of any
scheme of administration which might be devised by the Conference for the
islands.

THE NEAR EAST.

His Majesty Mehmed V, Sultan of Turkey, recently sent to this country a
special embassy to announce his accession. The quick transition of the
Government of the Ottoman Empire from one of retrograde tendencies to a
constitutional government with a Parliament and with progressive modern
policies of reform and public improvement is one of the important phenomena
of our times. Constitutional government seems also to have made further
advance in Persia. These events have turned the eyes of the world upon the
Near East. In that quarter the prestige of the United States has spread
widely through the peaceful influence of American schools, universities and
missionaries. There is every reason why we should obtain a greater share of
the commerce of the Near East since the conditions are more favorable now
than ever before.

LATIN AMERICA.

One of the happiest events in recent Pan-American diplomacy was the
pacific, independent settlement by the Governments of Bolivia and Peru of a
boundary difference between them, which for some weeks threatened to cause
war and even to entrain embitterments affecting other republics less
directly concerned. From various quarters, directly or indirectly
concerned, the intermediation of the United States was sought to assist in
a solution of the controversy. Desiring at all times to abstain from any
undue mingling in the affairs of sister republics and having faith in the
ability of the Governments of Peru and Bolivia themselves to settle their
differences in a manner satisfactory to themselves which, viewed with
magnanimity, would assuage all embitterment, this Government steadily
abstained from being drawn into the controversy and was much gratified to
find its confidence justified by events.

On the 9th of July next there will open at Buenos Aires the Fourth
Pan-American Conference. This conference will have a special meaning to the
hearts of all Americans, because around its date are clustered the
anniversaries of the independence of so many of the American republics. It
is not necessary for me to remind the Congress of the political, social and
commercial importance of these gatherings. You are asked to make liberal
appropriation for our participation. If this be granted, it is my purpose
to appoint a distinguished and representative delegation, qualified
fittingly to represent this country and to deal with the problems of
intercontinental interest which will there be discussed.

The Argentine Republic will also hold from May to November, 1910, at Buenos
Aires, a great International Agricultural Exhibition in which the United
States has been invited to participate. Considering the rapid growth of the
trade of the United States with the Argentine Republic and the cordial
relations existing between the two nations, together with the fact that it
provides an opportunity to show deference to a sister republic on the
occasion of the celebration of its national independence, the proper
Departments of this Government are taking steps to apprise the interests
concerned of the opportunity afforded by this Exhibition, in which
appropriate participation by this country is so desirable. The designation
of an official representative is also receiving consideration.

To-day, more than ever before, American capital is seeking investment in
foreign countries, and American products are more and more generally
seeking foreign markets. As a consequence, in all countries there are
American citizens and American interests to be protected, on occasion, by
their Government. These movements of men, of capital, and of commodities
bring peoples and governments closer together and so form bonds of peace
and mutual dependency, as they must also naturally sometimes make passing
points of friction. The resultant situation inevitably imposes upon this
Government vastly increased responsibilities. This Administration, through
the Department of State and the foreign service, is lending all proper
support to legitimate and beneficial American enterprises in foreign
countries, the degree of such support being measured by the national
advantages to be expected. A citizen himself can not by contract or
otherwise divest himself of the right, nor can this Government escape the
obligation, of his protection in his personal and property rights when
these are unjustly infringed in a foreign country. To avoid ceaseless
vexations it is proper that in considering whether American enterprise
should be encouraged or supported in a particular country, the Government
should give full weight not only to the national, as opposed to the
individual benefits to accrue, but also to the fact whether or not the
Government of the country in question is in its administration and in its
diplomacy faithful to the principles of moderation, equity and justice upon
which alone depend international credit, in diplomacy as well as in
finance.

The Pan-American policy of this Government has long been fixed in its
principles and remains unchanged. With the changed circumstances of the
United States and of the Republics to the south of us, most of which have
great natural resources, stable government and progressive ideals, the
apprehension which gave rise to the Monroe Doctrine may be said to have
nearly disappeared, and neither the doctrine as it exists nor any other
doctrine of American policy should be permitted to operate for the
perpetuation of irresponsible government, the escape of just obligations,
or the insidious allegation of dominating ambitions on the part of the
United States.

Beside the fundamental doctrines of our Pan-American policy there have
grown up a realization of political interests, community of institutions
and ideals, and a flourishing commerce. All these bonds will be greatly
strengthened as time goes on and increased facilities, such as the great
bank soon to be established in Latin America, supply the means for building
up the colossal intercontinental commerce of the future.

My meeting with President Diaz and the greeting exchanged on both American
and Mexican soil served, I hope, to signalize the close and cordial
relations which so well bind together this Republic and the great Republic
immediately to the south, between which there is so vast a network of
material interests.

I am happy to say that all but one of the cases which for so long vexed our
relations with Venezuela have been settled within the past few months and
that, under the enlightened regime now directing the Government of
Venezuela, provision has been made for arbitration of the remaining case
before The Hague Tribunal. On July 30, 1909, the Government of Panama
agreed, after considerable negotiation, to indemnify the relatives of the
American officers and sailors who were brutally treated, one of them
having, indeed, been killed by the Panaman police this year.

The sincere desire of the Government of Panama to do away with a situation
where such an accident could occur is manifest in the recent request in
compliance with which this Government has lent the services of an officer
of the Army to be employed by the Government of Panama as Instructor of
Police.

The sanitary improvements and public works undertaken in Cuba prior to the
present administration of that Government, in the success of which the
United States is interested under the treaty, are reported to be making
good progress and since the Congress provided for the continuance of the
reciprocal commercial arrangement between Cuba and the United States
assurance has been received that no negotiations injuriously affecting the
situation will be undertaken without consultation. The collection of the
customs of the Dominican Republic through the general receiver of customs
appointed by the President of the United States in accordance with the
convention of February 8, 1907, has proceeded in an uneventful and
satisfactory manner. The customs receipts have decreased owing to disturbed
political and economic conditions and to a very natural curtailment of
imports in view of the anticipated revision of the Dominican tariff
schedule. The payments to the fiscal agency fund for the service of the
bonded debt of the Republic, as provided by the convention, have been
regularly and promptly made, and satisfactory progress has been made in
carrying out the provisions of the convention looking towards the
completion of the adjustment of the debt and the acquirement by the
Dominican Government of certain concessions and monopolies which have been
a burden to the commerce of the country. In short, the receivership has
demonstrated its ability, even under unfavorable economic and political
conditions, to do the work for which it was intended.

This Government was obliged to intervene diplomatically to bring about
arbitration or settlement of the claim of the Emery Company against
Nicaragua, which it had long before been agreed should be arbitrated. A
settlement of this troublesome case was reached by the signature of a
protocol on September 18, 1909.

Many years ago diplomatic intervention became necessary to the protection
of the interests in the American claim of Alsop and Company against the
Government of Chile. The Government of Chile had frequently admitted
obligation in the case and had promised this Government to settle. There
had been two abortive attempts to do so through arbitral commissions, which
failed through lack of jurisdiction. Now, happily, as the result of the
recent diplomatic negotiations, the Governments of the United States and of
Chile, actuated by the sincere desire to free from any strain those cordial
and friendly relations upon which both set such store, have agreed by a
protocol to submit the controversy to definitive settlement by His
Britannic Majesty, Edward VII.

Since the Washington Conventions of 1907 were communicated to the
Government of the United States as a consulting and advising party, this
Government has been almost continuously called upon by one or another, and
in turn by all the five Central American Republics, to exert itself for the
maintenance of the Conventions. Nearly every complaint has been against the
Zelaya Government of Nicaragua, which has kept Central America in constant
tension or turmoil. The responses made to the representations of Central
American Republics, as due from the United States on account of its
relation to the Washington Conventions, have been at all times conservative
and have avoided, so far as possible, any semblance of interference,
although it is very apparent that the considerations of geographic
proximity to the Canal Zone and of the very substantial American interests
in Central America give to the United States a special position in the zone
of these Republics and the Caribbean Sea.

I need not rehearse here the patient efforts of this Government to promote
peace and welfare among these Republics, efforts which are fully
appreciated by the majority of them who are loyal to their true interests.
It would be no less unnecessary to rehearse here the sad tale of
unspeakable barbarities and oppression alleged to have been committed by
the Zelaya Government. Recently two Americans were put to death by order of
President Zelaya himself. They were reported to have been regularly
commissioned officers in the organized forces of a revolution which had
continued many weeks and was in control of about half of the Republic, and
as such, according to the modern enlightened practice of civilized nations,
they were entitled to be dealt with as prisoners of war.

At the date when this message is printed this Government has terminated
diplomatic relations with the Zelaya Government, for reasons made public in
a communication to the former Nicaraguan charge d'affaires, and is
intending to take such future steps as may be found most consistent with
its dignity, its duty to American interests, and its moral obligations to
Central America and to civilization. It may later be necessary for me to
bring this subject to the attention of the Congress in a special message.

The International Bureau of American Republics has carried on an important
and increasing work during the last year. In the exercise of its peculiar
functions as an international agency, maintained by all the American
Republics for the development of Pan-American commerce and friendship, it
has accomplished a great practical good which could be done in the same way
by no individual department or bureau of one government, and is therefore
deserving of your liberal support. The fact that it is about to enter a new
building, erected through the munificence of an American philanthropist and
the contributions of all the American nations, where both its efficiency of
administration and expense of maintenance will naturally be much augmented,
further entitles it to special consideration.

THE FAR EAST.

In the Far East this Government preserves unchanged its policy of
supporting the principle of equality of opportunity and scrupulous respect
for the integrity of the Chinese Empire, to which policy are pledged the
interested Powers of both East and West.

By the Treaty of 1903 China has undertaken the abolition of likin with a
moderate and proportionate raising of the customs tariff along with
currency reform. These reforms being of manifest advantage to foreign
commerce as well as to the interests of China, this Government is
endeavoring to facilitate these measures and the needful acquiescence of
the treaty Powers. When it appeared that Chinese likin revenues were to be
hypothecated to foreign bankers in connection with a great railway project,
it was obvious that the Governments whose nationals held this loan would
have a certain direct interest in the question of the carrying out by China
of the reforms in question. Because this railroad loan represented a
practical and real application of the open door policy through cooperation
with China by interested Powers as well as because of its relations to the
reforms referred to above, the Administration deemed American participation
to be of great national interest. Happily, when it was as a matter of broad
policy urgent that this opportunity should not be lost, the indispensable
instrumentality presented itself when a group of American bankers, of
international reputation and great resources, agreed at once to share in
the loan upon precisely such terms as this Government should approve. The
chief of those terms was that American railway material should be upon an
exact equality with that of the other nationals joining in the loan in the
placing of orders for this whole railroad system. After months of
negotiation the equal participation of Americans seems at last assured. It
is gratifying that Americans will thus take their share in this extension
of these great highways of trade, and to believe that such activities will
give a real impetus to our commerce and will prove a practical corollary to
our historic policy in the Far East.

The Imperial Chinese Government in pursuance of its decision to devote
funds from the portion of the indemnity remitted by the United States to
the sending of students to this country has already completed arrangements
for carrying out this purpose, and a considerable body of students have
arrived to take up their work in our schools and universities. No one can
doubt the happy effect that the associations formed by these representative
young men will have when they return to take up their work in the
progressive development of their country.

The results of the Opium Conference held at Shanghai last spring at the
invitation of the United States have been laid before the Government. The
report shows that China is making remarkable progress and admirable efforts
toward the eradication of the opium evil and that the Governments concerned
have not allowed their commercial interests to interfere with a helpful
cooperation in this reform. Collateral investigations of the opium question
in this country lead me to recommend that the manufacture, sale and use of
opium and its derivatives in the United States should be so far as possible
more rigorously controlled by legislation.

In one of the Chinese-Japanese Conventions of September 4 of this year
there was a provision which caused considerable public apprehension in that
upon its face it was believed in some quarters to seek to establish a
monopoly of mining privileges along the South Manchurian and Antung-Mukden
Railroads, and thus to exclude Americans from a wide field of enterprise,
to take part in which they were by treaty with China entitled. After a
thorough examination of the Conventions and of the several contextual
documents, the Secretary of State reached the conclusion that no such
monopoly was intended or accomplished. However, in view of the widespread
discussion of this question, to confirm the view it had reached, this
Government made inquiry of the Imperial Chinese and Japanese Governments
and received from each official assurance that the provision had no purpose
inconsistent with the policy of equality of opportunity to which the
signatories, in common with the United States, are pledged.

Our traditional relations with the Japanese Empire continue cordial as
usual. As the representative of Japan, His Imperial Highness Prince Kuni
visited the Hudson-Fulton Celebration. The recent visit of a delegation of
prominent business men as guests of the chambers of commerce of the Pacific
slope, whose representatives had been so agreeably received in Japan, will
doubtless contribute to the growing trade across the Pacific, as well as to
that mutual understanding which leads to mutual appreciation. The
arrangement of 1908 for a cooperative control of the coming of laborers to
the United States has proved to work satisfactorily. The matter of a
revision of the existing treaty between the United States and Japan which
is terminable in 1912 is already receiving the study of both countries.

The Department of State is considering the revision in whole or in part, of
the existing treaty with Siam, which was concluded in 1856, and is now, in
respect to many of its provisions, out of date.

THE DEPARTMENT OF STATE.

I earnestly recommend to the favorable action of the Congress the estimates
submitted by the Department of State and most especially the legislation
suggested in the Secretary of State's letter of this date whereby it will
be possible to develop and make permanent the reorganization of the
Department upon modern lines in a manner to make it a thoroughly efficient
instrument in the furtherance of our foreign trade and of American
interests abroad. The plan to have Divisions of Latin-American and Far
Eastern Affairs and to institute a certain specialization in business with
Europe and the Near East will at once commend itself. These
politico-geographical divisions and the detail from the diplomatic or
consular service to the Department of a number of men, who bring to the
study of complicated problems in different parts of the world practical
knowledge recently gained on the spot, clearly is of the greatest advantage
to the Secretary of State in foreseeing conditions likely to arise and in
conducting the great variety of correspondence and negotiation. It should
be remembered that such facilities exist in the foreign offices of all the
leading commercial nations and that to deny them to the Secretary of State
would be to place this Government at a great disadvantage in the rivalry of
commercial competition.

The consular service has been greatly improved under the law of April 5,
1906, and the Executive Order of June 27, 1906, and I commend to your
consideration the question of embodying in a statute the principles of the
present Executive Order upon which the efficiency of our consular service
is wholly dependent.

In modern times political and commercial interests are interrelated, and in
the negotiation of commercial treaties, conventions and tariff agreements,
the keeping open of opportunities and the proper support of American
enterprises, our diplomatic service is quite as important as the consular
service to the business interests of the country. Impressed with this idea
and convinced that selection after rigorous examination, promotion for
merit solely and the experience only to be gained through the continuity of
an organized service are indispensable to a high degree of efficiency in
the diplomatic service, I have signed an Executive Order as the first step
toward this very desirable result. Its effect should be to place all
secretaries in the diplomatic service in much the same position as consular
officers are now placed and to tend to the promotion of the most efficient
to the grade of minister, generally leaving for outside appointments such
posts of the grade of ambassador or minister as it may be expedient to fill
from without the service. It is proposed also to continue the practice
instituted last summer of giving to all newly appointed secretaries at
least one month's thorough training in the Department of State before they
proceed to their posts. This has been done for some time in regard to the
consular service with excellent results.

Under a provision of the Act of August 5, 1909, I have appointed three
officials to assist the officers of the Government in collecting
information necessary to a wise administration of the tariff act of August
5, 1909. As to questions of customs administration they are cooperating
with the officials of the Treasury Department and as to matters of the
needs and the exigencies of our manufacturers and exporters, with the
Department of Commerce and Labor, in its relation to the domestic aspect of
the subject of foreign commerce. In the study of foreign tariff treatment
they will assist the Bureau of Trade Relations of the Department of State.
It is hoped thus to coordinate and bring to bear upon this most important
subject all the agencies of the Government which can contribute anything to
its efficient handling.

As a consequence of Section 2 of the tariff act of August 5, 1909, it
becomes the duty of the Secretary of State to conduct as diplomatic
business all the negotiations necessary to place him in a position to
advise me as to whether or not a particular country unduly discriminates
against the United States in the sense of the statute referred to. The
great scope and complexity of this work, as well as the obligation to lend
all proper aid to our expanding commerce, is met by the expansion of the
Bureau of Trade Relations as set forth in the estimates for the Department
of State.

OTHER DEPARTMENTS.

I have thus in some detail described the important transactions of the
State Department since the beginning of this Administration for the reason
that there is no provision either by statute or custom for a formal report
by the Secretary of State to the President or to Congress, and a
Presidential message is the only means by which the condition of our
foreign relations is brought to the attention of Congress and the public.

In dealing with the affairs of the other Departments, the heads of which
all submit annual reports, I shall touch only those matters that seem to me
to call for special mention on my part without minimizing in any way the
recommendations made by them for legislation affecting their respective
Departments, in all of which I wish to express my general concurrence.

GOVERNMENT EXPENDITURES AND REVENUES.

Perhaps the most important question presented to this Administration is
that of economy in expenditures and sufficiency of revenue. The deficit of
the last fiscal year, and the certain deficit of the current year, prompted
Congress to throw a greater responsibility on the Executive and the
Secretary of the Treasury than had heretofore been declared by statute.
This declaration imposes upon the Secretary of the Treasury the duty of
assembling all the estimates of the Executive Departments, bureaus, and
offices, of the expenditures necessary in the ensuing fiscal year, and of
making an estimate of the revenues of the Government for the same period;
and if a probable deficit is thus shown, it is made the duty of the
President to recommend the method by which such deficit can be met.

The report of the Secretary shows that the ordinary expenditures for the
current fiscal year ending June 30, 1910, will exceed the estimated
receipts by $34,075,620. If to this deficit is added the sum to be
disbursed for the Panama Canal, amounting to $38,000,000, and $1,000,000 to
be paid on the public debt, the deficit of ordinary receipts and
expenditures will be increased to a total deficit of $73,075,620. This
deficit the Secretary proposes to meet by the proceeds of bonds issued to
pay the cost of constructing the Panama Canal. I approve this proposal.

The policy of paying for the construction of the Panama Canal, not out of
current revenue, but by bond issues, was adopted in the Spooner Act of
1902, and there seems to be no good reason for departing from the principle
by which a part at least of the burden of the cost of the canal shall fall
upon our posterity who are to enjoy it; and there is all the more reason
for this view because the actual cost to date of the canal, which is now
half done and which will be completed January 1, 1915, shows that the cost
of engineering and construction will be $297,766,000, instead of
$139,705,200, as originally estimated. In addition to engineering and
construction, the other expenses, including sanitation and government, and
the amount paid for the properties, the franchise, and the privilege of
building the canal, increase the cost by $75,435,000, to a total of
$375,201,000. The increase in the cost of engineering and construction is
due to a substantial enlargement of the plan of construction by widening
the canal 100 feet in the Culebra cut and by increasing the dimensions of
the locks, to the underestimate of the quantity of the work to be done
under the original plan, and to an underestimate of the cost of labor and
materials both of which have greatly enhanced in price since the original
estimate was made.

In order to avoid a deficit for the ensuing fiscal year, I directed the
heads of Departments in the preparation of their estimates to make them as
low as possible consistent with imperative governmental necessity. The
result has been, as I am advised by the Secretary of the Treasury, that the
estimates for the expenses of the Government for the next fiscal year
ending June 30, 1911, are less than the appropriations for this current
fiscal year by $42,818,000. So far as the Secretary of the Treasury is able
to form a judgment as to future income, and compare it with the
expenditures for the next fiscal year ending June 30, 1911, and excluding
payments on account of the Panama Canal, which will doubtless be taken up
by bonds, there will be a surplus of $35,931,000.

In the present estimates the needs of the Departments and of the Government
have been cut to the quick, so to speak, and any assumption on the part of
Congress, so often made in times past, that the estimates have been
prepared with the expectation that they may be reduced, will result in
seriously hampering proper administration.

The Secretary of the Treasury points out what should be carefully noted in
respect to this reduction in governmental expenses for the next fiscal
year, that the economies are of two kinds--first, there is a saving in the
permanent administration of the Departments, bureaus, and offices of the
Government; and, second, there is a present reduction in expenses by a
postponement of projects and improvements that ultimately will have to be
carried out but which are now delayed with the hope that additional revenue
in the future will permit their execution without producing a deficit.

It has been impossible in the preparation of estimates greatly to reduce
the cost of permanent administration. This can not be done without a
thorough reorganization of bureaus, offices, and departments. For the
purpose of securing information which may enable the executive and the
legislative branches to unite in a plan for the permanent reduction of the
cost of governmental administration, the Treasury Department has instituted
an investigation by one of the most skilled expert accountants in the
United States. The result of his work in two or three bureaus, which, if
extended to the entire Government, must occupy two or more years, has been
to show much room for improvement and opportunity for substantial
reductions in the cost and increased efficiency of administration. The
object of the investigation is to devise means to increase the average
efficiency of each employee. There is great room for improvement toward
this end, not only by the reorganization of bureaus and departments and in
the avoidance of duplication, but also in the treatment of the individual
employee.

Under the present system it constantly happens that two employees receive
the same salary when the work of one is far more difficult and important
and exacting than that of the other. Superior ability is not rewarded or
encouraged. As the classification is now entirely by salary, an employee
often rises to the highest class while doing the easiest work, for which
alone he may be fitted. An investigation ordered by my predecessor resulted
in the recommendation that the civil service he reclassified according to
the kind of work, so that the work requiring most application and knowledge
and ability shall receive most compensation. I believe such a change would
be fairer to the whole force and would permanently improve the personnel of
the service.

More than this, every reform directed toward the improvement in the average
efficiency of government employees must depend on the ability of the
Executive to eliminate from the government service those who are
inefficient from any cause, and as the degree of efficiency in all the
Departments is much lessened by the retention of old employees who have
outlived their energy and usefulness, it is indispensable to any proper
system of economy that provision be made so that their separation from the
service shall be easy and inevitable. It is impossible to make such
provision unless there is adopted a plan of civil pensions. Most of the
great industrial organizations, and many of the well-conducted railways of
this country, are coming to the conclusion that a system of pensions for
old employees, and the substitution therefor of younger and more energetic
servants, promotes both economy and efficiency of administration.

I am aware that there is a strong feeling in both Houses of Congress, and
possibly in the country, against the establishment of civil pensions, and
that this has naturally grown out of the heavy burden of military pensions,
which it has always been the policy of our Government to assume; but I am
strongly convinced that no other practical solution of the difficulties
presented by the superannuation of civil servants can be found than that of
a system of civil pensions.

The business and expenditures of the Government have expanded enormously
since the Spanish war, but as the revenues have increased in nearly the
same proportion as the expenditures until recently, the attention of the
public, and of those responsible for the Government, has not been fastened
upon the question of reducing the cost of administration. We can not, in
view of the advancing prices of living, hope to save money by a reduction
in the standard of salaries paid. Indeed, if any change is made in that
regard, an increase rather than a decrease will be necessary; and the only
means of economy will be in reducing the number of employees and in
obtaining a greater average of efficiency from those retained in the
service.

Close investigation and study needed to make definite recommendations in
this regard will consume at least two years. I note with much satisfaction
the organization in the Senate of a Committee on Public Expenditures,
charged with the duty of conducting such an investigation, and I tender to
that committee all the assistance which the executive branch of the
Government can possibly render.

FRAUDS IN THE COLLECTION OF CUSTOMS.

I regret to refer to the fact of the discovery of extensive frauds in the
collections of the customs revenue at New York City, in which a number of
the subordinate employees in the weighing and other departments were
directly concerned, and in which the beneficiaries were the American Sugar
Refining Company and others. The frauds consisted in the payment of duty on
underweights of sugar. The Government has recovered from the American Sugar
Refining Company all that it is shown to have been defrauded of. The sum
was received in full of the amount due, which might have been recovered by
civil suit against the beneficiary of the fraud, but there was an express
reservation in the contract of settlement by which the settlement should
not interfere with, or prevent the criminal prosecution of everyone who was
found to be subject to the same.

Criminal prosecutions are now proceeding against a number of the Government
officers. The Treasury Department and the Department of Justice are
exerting every effort to discover all the wrongdoers, including the
officers and employees of the companies who may have been privy to the
fraud. It would seem to me that an investigation of the frauds by Congress
at present, pending the probing by the Treasury Department and the
Department of Justice, as proposed, might by giving immunity and otherwise
prove an embarrassment in securing conviction of the guilty parties.

MAXIMUM AND MINIMUM CLAUSE IN TARIFF ACT.

Two features of the new tariff act call for special reference. By virtue of
the clause known as the "Maximum and Minimum" clause, it is the duty of the
Executive to consider the laws and practices of other countries with
reference to the importation into those countries of the products and
merchandise of the United States, and if the Executive finds such laws and
practices not to be unduly discriminatory against the United States, the
minimum duties provided in the bill are to go into force.

Unless the President makes such a finding, then the maximum duties provided
in the bill, that is, an increase of twenty-five per cent. ad valorem over
the minimum duties, are to be in force. Fear has been expressed that this
power conferred and duty imposed on the Executive is likely to lead to a
tariff war. I beg to express the hope and belief that no such result need
be anticipated.

The discretion granted to the Executive by the terms "unduly
discriminatory" is wide. In order that the maximum duty shall be charged
against the imports from a country, it is necessary that he shall find on
the part of that country not only discriminations in its laws or the
practice under them against the trade of the United States, but that the
discriminations found shall be undue; that is, without good and fair
reason. I conceive that this power was reposed in the President with the
hope that the maximum duties might never be applied in any case, but that
the power to apply them would enable the President and the State Department
through friendly negotiation to secure the elimination from the laws and
the practice under them of any foreign country of that which is unduly
discriminatory. No one is seeking a tariff war or a condition in which the
spirit of retaliation shall be aroused.

USES OF THE NEW TARIFF BOARD.

The new tariff law enables me to appoint a tariff board to assist me in
connection with the Department of State in the administration of the
minimum and maximum clause of the act and also to assist officers of the
Government in the administration of the entire law. An examination of the
law and an understanding of the nature of the facts which should be
considered in discharging the functions imposed upon the Executive show
that I have the power to direct the tariff board to make a comprehensive
glossary and encyclopedia of the terms used and articles embraced in the
tariff law, and to secure information as to the cost of production of such
goods in this country and the cost of their production in foreign
countries. I have therefore appointed a tariff board consisting of three
members and have directed them to perform all the duties above described.
This work will perhaps take two or three years, and I ask from Congress a
continuing annual appropriation equal to that already made for its
prosecution. I believe that the work of this board will be of prime utility
and importance whenever Congress shall deem it wise again to readjust the
customs duties. If the facts secured by the tariff board are of such a
character as to show generally that the rates of duties imposed by the
present tariff law are excessive under the principles of protection as
described in the platform of the successful party at the late election, I
shall not hesitate to invite the attention of Congress to this fact and to
the necessity for action predicated thereon. Nothing, however, halts
business and interferes with the course of prosperity so much as the
threatened revision of the tariff, and until the facts are at hand, after
careful and deliberate investigation, upon which such revision can properly
be undertaken, it seems to me unwise to attempt it. The amount of
misinformation that creeps into arguments pro and con in respect to tariff
rates is such as to require the kind of investigation that I have directed
the tariff board to make, an investigation undertaken by it wholly without
respect to the effect which the facts may have in calling for a
readjustment of the rates of duty.

WAR DEPARTMENT.

In the interest of immediate economy and because of the prospect of a
deficit, I have required a reduction in the estimates of the War Department
for the coming fiscal year, which brings the total estimates down to an
amount forty-five millions less than the corresponding estimates for last
year. This could only be accomplished by cutting off new projects and
suspending for the period of one year all progress in military matters. For
the same reason I have directed that the Army shall not be recruited up to
its present authorized strength. These measures can hardly be more than
temporary--to last until our revenues are in better condition and until the
whole question of the expediency of adopting a definite military policy can
be submitted to Congress, for I am sure that the interests of the military
establishment are seriously in need of careful consideration by Congress.
The laws regulating the organization of our armed forces in the event of
war need to be revised in order that the organization can be modified so as
to produce a force which would be more consistently apportioned throughout
its numerous branches. To explain the circumstances upon which this opinion
is based would necessitate a lengthy discussion, and I postpone it until
the first convenient opportunity shall arise to send to Congress a special
message upon this subject.

The Secretary of War calls attention to a number of needed changes in the
Army in all of which I concur, but the point upon which I place most
emphasis is the need for an elimination bill providing a method by which
the merits of officers shall have some effect upon their advancement and by
which the advancement of all may be accelerated by the effective
elimination of a definite proportion of the least efficient. There are in
every army, and certainly in ours, a number of officers who do not violate
their duty in any such way as to give reason for a court-martial or
dismissal, but who do not show such aptitude and skill and character for
high command as to justify their remaining in the active service to be
Promoted. Provision should be made by which they may be retired on a
certain proportion of their pay, increasing with their length of service at
the time of retirement. There is now a personnel law for the Navy which
itself needs amendment and to which I shall make further reference. Such a
law is needed quite as much for the Army.

The coast defenses of the United States proper are generally all that could
be desired, and in some respects they are rather more elaborate than under
present conditions are needed to stop an enemy's fleet from entering the
harbors defended. There is, however, one place where additional defense is
badly needed, and that is at the mouth of Chesapeake Bay, where it is
proposed to make an artificial island for a fort which shall prevent an
enemy's fleet from entering this most important strategical base of
operations on the whole Atlantic and Gulf coasts. I hope that appropriate
legislation will be adopted to secure the construction of this defense.

The military and naval joint board have unanimously agreed that it would be
unwise to make the large expenditures which at one time were contemplated
in the establishment of a naval base and station in the Philippine Islands,
and have expressed their judgment, in which I fully concur, in favor of
making an extensive naval base at Pearl Harbor, near Honolulu, and not in
the Philippines. This does not dispense with the necessity for the
comparatively small appropriations required to finish the proper coast
defenses in the Philippines now under construction on the island of
Corregidor and elsewhere or to complete a suitable repair station and
coaling supply station at Olongapo, where is the floating dock "Dewey." I
hope that this recommendation of the joint board will end the discussion as
to the comparative merits of Manila Bay and Olongapo as naval stations, and
will lead to prompt measures for the proper equipment and defense of Pearl
Harbor.

THE NAVY.

The return of the battle-ship fleet from its voyage around the world, in
more efficient condition than when it started, was a noteworthy event of
interest alike to our citizens and the naval authorities of the world.
Besides the beneficial and far-reaching effect on our personal and
diplomatic relations in the countries which the fleet visited, the marked
success of the ships in steaming around the world in all weathers on
schedule time has increased respect for our Navy and has added to our
national prestige.

Our enlisted personnel recruited from all sections of the country is young
and energetic and representative of the national spirit. It is, moreover,
owing to its intelligence, capable of quick training into the modern
man-of-warsman. Our officers are earnest and zealous in their profession,
but it is a regrettable fact that the higher officers are old for the
responsibilities of the modern navy, and the admirals do not arrive at flag
rank young enough to obtain adequate training in their duties as flag
officers. This need for reform in the Navy has been ably and earnestly
presented to Congress by my predecessor, and I also urgently recommend the
subject for consideration.

Early in the coming session a comprehensive plan for the reorganization of
the officers of all corps of the Navy will be presented to Congress, and I
hope it will meet with action suited to its urgency.

Owing to the necessity for economy in expenditures, I have directed the
curtailment of recommendations for naval appropriations so that they are
thirty-eight millions less than the corresponding estimates of last year,
and the request for new naval construction is limited to two first-class
battle ships and one repair vessel.

The use of a navy is for military purposes, and there has been found need
in the Department of a military branch dealing directly with the military
use of the fleet. The Secretary of the Navy has also felt the lack of
responsible advisers to aid him in reaching conclusions and deciding
important matters between coordinate branches of the Department. To secure
these results he has inaugurated a tentative plan involving certain changes
in the organization of the Navy Department, including the navy-yards, all
of which have been found by the Attorney-General to be in accordance with
law. I have approved the execution of the plan proposed because of the
greater efficiency and economy it promises.

The generosity of Congress has provided in the present Naval Observatory
the most magnificent and expensive astronomical establishment in the world.
It is being used for certain naval purposes which might easily and
adequately be subserved by a small division connected with the Naval
Department at only a fraction of the cost of the present Naval Observatory.
The official Board of Visitors established by Congress and appointed in
1901 expressed its conclusion that the official head of the observatory
should be an eminent astronomer appointed by the President by and with the
advice and consent of the Senate, holding his place by a tenure at least as
permanent as that of the Superintendent of the Coast Survey or the head of
the Geological Survey, and not merely by a detail of two or three years'
duration. I fully concur in this judgment, and urge a provision by law for
the appointment of such a director.

It may not be necessary to take the observatory out of the Navy Department
and put it into another department in which opportunity for scientific
research afforded by the observatory would seem to be more appropriate,
though I believe such a transfer in the long run is the best policy. I am
sure, however, I express the desire of the astronomers and those learned in
the kindred sciences when I urge upon Congress that the Naval Observatory
be now dedicated to science under control of a man of science who can, if
need be, render all the service to the Navy Department which this
observatory now renders, and still furnish to the world the discoveries in
astronomy that a great astronomer using such a plant would be likely to
make.

DEPARTMENT OF JUSTICE EXPEDITION IN LEGAL PROCEDURE

The deplorable delays in the administration of civil and criminal law have
received the attention of committees of the American Bar Association and of
many State Bar Associations, as well as the considered thought of judges
and jurists. In my judgment, a change in judicial procedure, with a view to
reducing its expense to private litigants in civil cases and facilitating
the dispatch of business and final decision in both civil and criminal
cases, constitutes the greatest need in our American institutions. I do not
doubt for one moment that much of the lawless violence and cruelty
exhibited in lynchings is directly due to the uncertainties and injustice
growing out of the delays in trials, judgments, and the executions thereof
by our courts. Of course these remarks apply quite as well to the
administration of justice in State courts as to that in Federal courts, and
without making invidious distinction it is perhaps not too much to say
that, speaking generally, the defects are less in the Federal courts than
in the State courts. But they are very great in the Federal courts. The
expedition with which business is disposed of both on the civil and the
criminal side of English courts under modern rules of procedure makes the
delays in our courts seem archaic and barbarous. The procedure in the
Federal courts should furnish an example for the State courts. I presume it
is impossible, without an amendment to the Constitution, to unite under one
form of action the proceedings at common law and proceedings in equity in
the Federal courts, but it is certainly not impossible by a statute to
simplify and make short and direct the procedure both at law and in equity
in those courts. It is not impossible to cut down still more than it is cut
down, the jurisdiction of the Supreme Court so as to confine it almost
wholly to statutory and constitutional questions. Under the present
statutes the equity and admiralty procedure in the Federal courts is under
the control of the Supreme Court, but in the pressure of business to which
that court is subjected, it is impossible to hope that a radical and proper
reform of the Federal equity procedure can be brought about. I therefore
recommend legislation providing for the appointment by the President of a
commission with authority to examine the law and equity procedure of the
Federal courts of first instance, the law of appeals from those courts to
the courts of appeals and to the Supreme Court, and the costs imposed in
such procedure upon the private litigants and upon the public treasury and
make recommendation with a view to simplifying and expediting the procedure
as far as possible and making it as inexpensive as may be to the litigant
of little means.

INJUNCTIONS WITHOUT NOTICE.

The platform of the successful party in the last election contained the
following: "The Republican party will uphold at all times the authority and
integrity of the courts, State and Federal, and will ever insist that their
powers to enforce their process and to protect life, liberty, and property
shall be preserved inviolate. We believe, however, that the rules of
procedure in the Federal courts with respect to the issuance of the writ of
injunction should be more accurately defined by statute, and that no
injunction or temporary restraining order should be issued without notice,
except where irreparable injury would result from delay, in which case a
speedy hearing thereafter should be granted." I recommend that in
compliance with the promise thus made, appropriate legislation be adopted.
The ends of justice will best be met and the chief cause of complaint
against ill-considered injunctions without notice will be removed by the
enactment of a statute forbidding hereafter the issuing of any injunction
or restraining order, whether temporary or permanent, by any Federal court,
without previous notice and a reasonable opportunity to be heard on behalf
of the parties to be enjoined; unless it shall appear to the satisfaction
of the court that the delay necessary to give such notice and hearing would
result in irreparable injury to the complainant and unless also the court
shall from the evidence make a written finding, which shall be spread upon
the court minutes, that immediate and irreparable injury is likely to ensue
to the complainant, and shall define the injury, state why it is
irreparable, and shall also endorse on the order issued the date and the
hour of the issuance of the order. Moreover, every such injunction or
restraining order issued without previous notice and opportunity by the
defendant to be heard should by force of the statute expire and be of no
effect after seven days from the issuance thereof or within any time less
than that period which the court may fix, unless within such seven days or
such less period, the injunction or order is extended or renewed after
previous notice and opportunity to be heard.

My judgment is that the passage of such an act which really embodies the
best practice in equity and is very like the rule now in force in some
courts will prevent the issuing of ill-advised orders of injunction without
notice and will render such orders when issued much less objectionable by
the short time in which they may remain effective.

ANTI-TRUST AND INTERSTATE COMMERCE LAWS.

The jurisdiction of the General Government over interstate commerce has led
to the passage of the so-called "Sherman Anti-trust Law" and the
"Interstate Commerce Law" and its amendments. The developments in the
operation of those laws, as shown by indictments, trials, judicial
decisions, and other sources of information, call for a discussion and some
suggestions as to amendments. These I prefer to embody in a special message
instead of including them in the present communication, and I shall avail
myself of the first convenient opportunity to bring these subjects to the
attention of Congress.

JAIL OF THE DISTRICT OF COLUMBIA.

My predecessor transmitted to the Congress a special message on January 11,
1909, accompanying the report of Commissioners theretofore appointed to
investigate the jail, workhouse, etc., in the District of Columbia, in
which he directed attention to the report as setting forth vividly, "the
really outrageous conditions in the workhouse and jail."

The Congress has taken action in pursuance of the recommendations of that
report and of the President, to the extent of appropriating funds and
enacting the necessary legislation for the establishment of a workhouse and
reformatory. No action, however, has been taken by the Congress with
respect to the jail, the conditions of which are still antiquated and
insanitary. I earnestly recommend the passage of a sufficient appropriation
to enable a thorough remodeling of that institution to be made without
delay. It is a reproach to the National Government that almost under the
shadow of the Capitol Dome prisoners should be confined in a building
destitute of the ordinary decent appliances requisite to cleanliness and
sanitary conditions.

POST-OFFICE DEPARTMENT. SECOND-CLASS MAIL MATTER.

The deficit every year in the Post-Office Department is largely caused by
the low rate of postage of 1 cent a pound charged on second-class mail
matter, which includes not only newspapers, but magazines and miscellaneous
periodicals. The actual loss growing out of the transmission of this
second-class mail matter at 1 cent a pound amounts to about $63,000,000 a
year. The average cost of the transportation of this matter is more than 9
cents a pound.

It appears that the average distance over which newspapers are delivered to
their customers is 291 miles, while the average haul of magazines is 1,049,
and of miscellaneous periodicals 1,128 miles. Thus, the average haul of the
magazine is three and one-half times and that of the miscellaneous
periodical nearly four times the haul of the daily newspaper, yet all of
them pay the same postage rate of 1 cent a pound. The statistics of 1907
show that second-class mail matter constituted 63.91 per cent. of the
weight of all the mail, and yielded only 5.19 per cent. of the revenue.

The figures given are startling, and show the payment by the Government of
an enormous subsidy to the newspapers, magazines, and periodicals, and
Congress may well consider whether radical steps should not be taken to
reduce the deficit in the Post-Office Department caused by this discrepancy
between the actual cost of transportation and the compensation exacted
therefor.

A great saving might be made, amounting to much more than half of the loss,
by imposing upon magazines and periodicals a higher rate of postage. They
are much heavier than newspapers, and contain a much higher proportion of
advertising to reading matter, and the average distance of their
transportation is three and a half times as great.

The total deficit for the last fiscal year in the Post-Office Department
amounted to $17,500,000. The branches of its business which it did at a
loss were the second-class mail service, in which the loss, as already
said, was $63,000,000, and the free rural delivery, in which the loss was
$28,000,000. These losses were in part offset by the profits of the letter
postage and other sources of income. It would seem wise to reduce the loss
upon second-class mail matter, at least to the extent of preventing a
deficit in the total operations of the Post-Office.

I commend the whole subject to Congress, not unmindful of the spread of
intelligence which a low charge for carrying newspapers and periodicals
assists. I very much doubt, however, the wisdom of a policy which
constitutes so large a subsidy and requires additional taxation to meet
it.

POSTAL SAVINGS BANKS.

The second subject worthy of mention in the Post-Office Department is the
real necessity and entire practicability of establishing postal savings
banks. The successful party at the last election declared in favor of
postal savings banks, and although the proposition finds opponents in many
parts of the country, I am convinced that the people desire such banks, and
am sure that when the banks are furnished they will be productive of the
utmost good. The postal savings banks are not constituted for the purpose
of creating competition with other banks. The rate of interest upon
deposits to which they would be limited would be so small as to prevent
their drawing deposits away from other banks.

I believe them to be necessary in order to offer a proper inducement to
thrift and saving to a great many people of small means who do not now have
banking facilities, and to whom such a system would offer an opportunity
for the accumulation of capital. They will furnish a satisfactory
substitute, based on sound principle and actual successful trial in nearly
all the countries of the world, for the system of government guaranty of
deposits now being adopted in several western States, which with deference
to those who advocate it seems to me to have in it the seeds of
demoralization to conservative banking and certain financial disaster. The
question of how the money deposited in postal savings banks shall be
invested is not free from difficulty, but I believe that a satisfactory
provision for this purpose was inserted as an amendment to the bill
considered by the Senate at its last session. It has been proposed to delay
the consideration of legislation establishing a postal savings bank until
after the report of the Monetary Commission. This report is likely to be
delayed, and properly so, cause of the necessity for careful deliberation
and close investigation. I do not see why the one should be tied up with
the other. It is understood that the Monetary Commission have looked into
the systems of banking which now prevail abroad, and have found that by a
control there exercised in respect to reserves and the rates of exchange by
some central authority panics are avoided. It is not apparent that a system
of postal savings banks would in any way interfere with a change to such a
system here. Certainly in most of the countries of Europe where control is
thus exercised by a central authority, postal savings banks exist and are
not thought to be inconsistent with a proper financial and banking system.

SHIP SUBSIDY.

Following the course of my distinguished predecessor, I earnestly recommend
to Congress the consideration and passage of a ship subsidy bill, looking
to the establishment of lines between our Atlantic seaboard and the eastern
coast of South America, as well as lines from the west coast of the United
States to South America. China, Japan, and the Philippines. The profits on
foreign mails are perhaps a sufficient measure of the expenditures which
might first be tentatively applied to this method of inducing American
capital to undertake the establishment of American lines of steamships in
those directions in which we now feel it most important that we should have
means of transportation controlled in the interest of the expansion of our
trade. A bill of this character has once passed the House and more than
once passed the Senate, and I hope that at this session a bill framed on
the same lines and with the same purposes may become a law.

INTERIOR DEPARTMENT. NEW MEXICO AND ARIZONA.

The successful party in the last election in its national platform declared
in favor of the admission as separate States of New Mexico and Arizona, and
I recommend that legislation appropriate to this end be adopted. I urge,
however, that care be exercised in the preparation of the legislation
affecting each Territory to secure deliberation in the selection of persons
as members of the convention to draft a constitution for the incoming
State, and I earnestly advise that such constitution after adoption by the
convention shall be submitted to the people of the Territory for their
approval at an election in which the sole issue shall be the merits of the
proposed constitution, and if the constitution is defeated by popular vote
means shall be provided in the enabling act for a new convention and the
drafting of a new constitution. I think it vital that the issue as to the
merits of the constitution should not be mixed up with the selection of
State officers, and that no election of State officers should be had until
after the constitution has been fully approved and finally settled upon.

ALASKA.

With respect to the Territory of Alaska, I recommend legislation which
shall provide for the appointment by the President of a governor and also
of an executive council, the members of which shall during their term of
office reside in the Territory, and which shall have legislative powers
sufficient to enable it to give to the Territory local laws adapted to its
present growth. I strongly deprecate legislation looking to the election of
a Territorial legislature in that vast district. The lack of permanence of
residence of a large part of the present population and the small number of
the people who either permanently or temporarily reside in the district as
compared with its vast expanse and the variety of the interests that have
to be subserved, make it altogether unfitting in my judgment to provide for
a popular election of a legislative body. The present system is not
adequate and does not furnish the character of local control that ought to
be there. The only compromise it seems to me which may give needed local
legislation and secure a conservative government is the one I propose.

CONSERVATION OF NATIONAL RESOURCES.

In several Departments there is presented the necessity for legislation
looking to the further conservation of our national resources, and the
subject is one of such importance as to require a more detailed and
extended discussion than can be entered upon in this communication. For
that reason I shall take an early opportunity to send a special message to
Congress on the subject of the improvement of our waterways, upon the
reclamation and irrigation of arid, semiarid, and swamp lands; upon the
preservation of our forests and the reforesting of suitable areas; upon the
reclassification of the public domain with a view of separating from
agricultural settlement mineral, coal, and phosphate lands and sites
belonging to the Government bordering on streams suitable for the
utilization of water power.

DEPARTMENT OF AGRICULTURE.

I commend to your careful consideration the report of the Secretary of
Agriculture as showing the immense sphere of usefulness which that
Department now fills and the wonderful addition to the wealth of the nation
made by the farmers of this country in the crops of the current year.

DEPARTMENT OF COMMERCE AND LABOR. THE LIGHT-HOUSE BOARD.

The Light-House Board now discharges its duties under the Department of
Commerce and Labor. For upwards of forty years this Board has been
constituted of military and naval officers and two or three men of science,
with such an absence of a duly constituted executive head that it is
marvelous what work has been accomplished. In the period of construction
the energy and enthusiasm of all the members prevented the inherent defects
of the system from interfering greatly with the beneficial work of the
Board, but now that the work is chiefly confined to maintenance and repair,
for which purpose the country is divided into sixteen districts, to which
are assigned an engineer officer of the Army and an inspector of the Navy,
each with a light-house tender and the needed plant for his work, it has
become apparent by the frequent friction that arises, due to the absence of
any central independent authority, that there must be a complete
reorganization of the Board. I concede the advantage of keeping in the
system the rigidity of discipline that the presence of naval and military
officers in charge insures, but unless the presence of such officers in the
Board can be made consistent with a responsible executive head that shall
have proper authority, I recommend the transfer of control over the
light-houses to a suitable civilian bureau. This is in accordance with the
judgment of competent persons who are familiar with the workings of the
present system. I am confident that a reorganization can be effected which
shall avoid the recurrence of friction between members, instances of which
have been officially brought to my attention, and that by such
reorganization greater efficiency and a substantial reduction in the
expense of operation can be brought about.

CONSOLIDATION OF BUREAUS.

I request Congressional authority to enable the Secretary of Commerce and
Labor to unite the Bureaus of Manufactures and Statistics. This was
recommended by a competent committee appointed in the previous
administration for the purpose of suggesting changes in the interest of
economy and efficiency, and is requested by the Secretary.

THE WHITE SLAVE TRADE.

I greatly regret to have to say that the investigations made in the Bureau
of Immigration and other sources of information lead to the view that there
is urgent necessity for additional legislation and greater executive
activity to suppress the recruiting of the ranks of prostitutes from the
streams of immigration into this country--an evil which, for want of a
better name, has been called "The White Slave Trade." I believe it to be
constitutional to forbid, under penalty, the transportation of persons for
purposes of prostitution across national and state lines; and by
appropriating a fund of $50,000 to be used by the Secretary of Commerce and
Labor for the employment of special inspectors it will be possible to bring
those responsible for this trade to indictment and conviction under a
federal law.

BUREAU OF HEALTH

For a very considerable period a movement has been gathering strength,
especially among the members of the medical profession, in favor of a
concentration of the instruments of the National Government which have to
do with the promotion of public health. In the nature of things, the
Medical Department of the Army and the Medical Department of the Navy must
be kept separate. But there seems to be no reason why all the other bureaus
and offices in the General Government which have to do with the public
health or subjects akin thereto should not be united in a bureau to be
called the "Bureau of Public Health." This would necessitate the transfer
of the Marine-Hospital Service to such a bureau. I am aware that there is
wide field in respect to the public health committed to the States in which
the Federal Government can not exercise jurisdiction, but we have seen in
the Agricultural Department the expansion into widest usefulness of a
department giving attention to agriculture when that subject is plainly one
over which the States properly exercise direct jurisdiction. The
opportunities offered for useful research and the spread of useful
information in regard to the cultivation of the soil and the breeding of
stock and the solution of many of the intricate problems in progressive
agriculture have demonstrated the wisdom of establishing that department.
Similar reasons, of equal force, can be given for the establishment of a
bureau of health that shall not only exercise the police jurisdiction of
the Federal Government respecting quarantine, but which shall also afford
an opportunity for investigation and research by competent experts into
questions of health affecting the whole country, or important sections
thereof, questions which, in the absence of Federal governmental work, are
not likely to be promptly solved.

CIVIL SERVICE COMMISSION.

The work of the United States Civil Service Commission has been performed
to the general satisfaction of the executive officers with whom the
Commission has been brought into official communication. The volume of that
work and its variety and extent have under new laws, such as the Census
Act, and new Executive orders, greatly increased. The activities of the
Commission required by the statutes have reached to every portion of the
public domain.

The accommodations of the Commission are most inadequate for its needs. I
call your attention to its request for increase in those accommodations as
will appear from the annual report for this year.

POLITICAL CONTRIBUTIONS.

I urgently recommend to Congress that a law be passed requiring that
candidates in elections of Members of the House of Representatives, and
committees in charge of their candidacy and campaign, file in a proper
office of the United States Government a statement of the contributions
received and of the expenditures incurred in the campaign for such
elections and that similar legislation be enacted in respect to all other
elections which are constitutionally within the control of Congress.

FREEDMAN'S SAVINGS AND TRUST COMPANY.

Recommendations have been made by my predecessors that Congress appropriate
a sufficient sum to pay the balance--about 38 per cent.--of the amounts due
depositors in the Freedman's Savings and Trust Company. I renew this
recommendation, and advise also that a proper limitation be prescribed
fixing a period within which the claims may be presented, that assigned
claims be not recognized, and that a limit be imposed on the amount of fees
collectible for services in presenting such claims.

SEMI-CENTENNIAL OF NEGRO FREEDOM.

The year 1913 will mark the fiftieth anniversary of the issuance of the
Emancipation Proclamation granting freedom to the negroes. It seems fitting
that this event should be properly celebrated. Already a movement has been
started by prominent Negroes, encouraged by prominent white people and the
press. The South especially is manifesting its interest in this movement.

It is suggested that a proper form of celebration would be an exposition to
show the progress the Negroes have made, not only during their period of
freedom, but also from the time of their coming to this country.

I heartily indorse this proposal, and request that the Executive be
authorized to appoint a preliminary commission of not more than seven
persons to consider carefully whether or not it is wise to hold such an
exposition, and if so, to outline a plan for the enterprise. I further
recommend that such preliminary commission serve without salary, except as
to their actual expenses, and that an appropriation be made to meet such
expenses. CONCLUSION.

I have thus, in a message compressed as much as the subjects will permit,
referred to many of the legislative needs of the country, with the
exceptions already noted. Speaking generally, the country is in a high
state of prosperity. There is every reason to believe that we are on the
eve of a substantial business expansion, and we have just garnered a
harvest unexampled in the market value of our agricultural products. The
high prices which such products bring mean great prosperity for the farming
community, but on the other hand they mean a very considerably increased
burden upon those classes in the community whose yearly compensation does
not expand with the improvement in business and the general prosperity.
Various reasons are given for the high prices. The proportionate increase
in the output of gold, which to-day is the chief medium of exchange and is
in some respects a measure of value, furnishes a substantial explanation of
at least a part of the increase in prices. The increase in population and
the more expensive mode of living of the people, which have not been
accompanied by a proportionate increase in acreage production, may furnish
a further reason. It is well to note that the increase in the cost of
living is not confined to this country, but prevails the world over, and
that those who would charge increases in prices to the existing protective
tariff must meet the fact that the rise in prices has taken place almost
wholly in those products of the factory and farm in respect to which there
has been either no increase in the tariff or in many instances a very
considerable reduction.

***

State of the Union Address
William H. Taft
December 6, 1910

To the Senate and House of Representatives:

During the past year the foreign relations of the United States have
continued upon a basis of friendship and good understanding.

ARBITRATION.

The year has been notable as witnessing the pacific settlement of two
important international controversies before the Permanent Court of The
Hague.

The arbitration of the Fisheries dispute between the United States and
Great Britain, which has been the source of nearly continuous diplomatic
correspondence since the Fisheries Convention of 1818, has given an award
which is satisfactory to both parties. This arbitration is particularly
noteworthy not only because of the eminently just results secured, but also
because it is the first arbitration held under the general arbitration
treaty of April 4, 1908, between the United States and Great Britain, and
disposes of a controversy the settlement of which has resisted every other
resource of diplomacy, and which for nearly ninety years has been the cause
of friction between two countries whose common interest lies in maintaining
the most friendly and cordial relations with each other.

The United States was ably represented before the tribunal. The complicated
history of the questions arising made the issue depend, more than
ordinarily in such cases, upon the care and skill with which our case was
presented, and I should be wanting in proper recognition of a great
patriotic service if I did not refer to the lucid historical analysis of
the facts and the signal ability and force of the argument--six days in
length--presented to the Court in support of our case by Mr. Elihu Root. As
Secretary of State, Mr. Root had given close study to the intricate facts
bearing on the controversy, and by diplomatic correspondence had helped to
frame the issues. At the solicitation of the Secretary of State and myself,
Mr. Root, though burdened by his duties as Senator from New York, undertook
the preparation of the case as leading counsel, with the condition imposed
by himself that, in view of his position as Senator, he should not receive
any compensation.

The Tribunal constituted at The Hague by the Governments of the United
States and Venezuela has completed its deliberations and has rendered an
award in the case of the Orinoco Steamship Company against Venezuela. The
award may be regarded as satisfactory since it has, pursuant to the
contentions of the United States, recognized a number of important
principles making for a judicial attitude in the determining of
international disputes.

In view of grave doubts which had been raised as to the constitutionality
of The Hague Convention for the establishment of an International Prize
Court, now before the Senate for ratification, because of that provision of
the Convention which provides that there may be an appeal to the proposed
Court from the decisions of national courts, this government proposed in an
Identic Circular Note addressed to those Powers who had taken part in the
London Maritime Conference, that the powers signatory to the Convention, if
confronted with such difficulty, might insert a reservation to the effect
that appeals to the International Prize Court in respect to decisions of
its national tribunals, should take the form of a direct claim for
compensation; that the proceedings thereupon to be taken should be in the
form of a trial de novo, and that judgment of the Court should consist of
compensation for the illegal capture, irrespective of the decision of the
national court whose judgment had thus been internationally involved. As
the result of an informal discussion it was decided to provide such
procedure by means of a separate protocol which should be ratified at the
same time as the Prize Court Convention itself.

Accordingly, the Government of the Netherlands, at the request of this
Government, proposed under date of May 24, 1910, to the powers signatory to
The Hague Convention, the negotiation of a supplemental protocol embodying
stipulations providing for this alternative procedure. It is gratifying to
observe that this additional protocol is being signed without objection, by
the powers signatory to the original convention, and there is every reason
to believe that the International Prize Court will be soon established.

The Identic Circular Note also proposed that the International Prize Court
when established should be endowed with the functions of an Arbitral Court
of Justice under and pursuant to the recommendation adopted by the last
Hague Conference. The replies received from the various powers to this
proposal inspire the hope that this also may be accomplished within the
reasonably near future.

It is believed that the establishment of these two tribunals will go a long
way toward securing the arbitration of many questions which have heretofore
threatened and, at times, destroyed the peace of nations.

PEACE COMMISSION.

Appreciating these enlightened tendencies of modern times, the Congress at
its last session passed a law providing for the appointment of a commission
of five members "to be appointed by the President of the United States to
consider the expediency of utilizing existing international agencies for
the purpose of limiting the armaments of the nations of the world by
international agreement, and of constituting the combined navies of the
world an international force for the preservation of universal peace, and
to consider and report upon any other means to diminish the expenditures of
government for military purposes and to lessen the probabilities of war."

I have not as yet made appointments to this Commission because I have
invited and am awaiting the expressions of foreign governments as to their
willingness to cooperate with us in the appointment of similar commissions
or representatives who would meet with our commissioners and by joint
action seek to make their work effective.

GREAT BRITAIN AND CANADA.

Several important treaties have been negotiated with Great Britain in the
past twelve months. A preliminary diplomatic agreement has been reached
regarding the arbitration of pecuniary claims which each Government has
against the other. This agreement, with the schedules of claims annexed,
will, as soon as the schedules are arranged, be submitted to the Senate for
approval.

An agreement between the United States and Great Britain with regard to the
location of the international boundary line between the United States and
Canada in Passamaquoddy Bay and to the middle of Grand Manan Channel was
reached in a Treaty concluded May 21, 1910, which has been ratified by both
Governments and proclaimed, thus making unnecessary the arbitration
provided for in the previous treaty of April 11, 1908.

The Convention concluded January 11, 1909, between the United States and
Great Britain providing for the settlement of international differences
between the United States and Canada including the apportionment between
the two countries of certain of the boundary waters and the appointment of
Commissioners to adjust certain other questions has been ratified by both
Governments and proclaimed.

The work of the International Fisheries Commission appointed in 1908, under
the treaty of April 11, 1908, between Great Britain and the United States,
has resulted in the formulation and recommendation of uniform regulations
governing the fisheries of the boundary waters of Canada and the United
States for the purpose of protecting and increasing the supply of food fish
in such waters. In completion of this work, the regulations agreed upon
require congressional legislation to make them effective and for their
enforcement in fulfillment of the treaty stipulations. PORTUGAL.

In October last the monarchy in Portugal was overthrown, a provisional
Republic was proclaimed, and there was set up a de facto Government which
was promptly recognized by the Government of the United States for purposes
of ordinary intercourse pending formal recognition by this and other Powers
of the Governmental entity to be duly established by the national
sovereignty. LIBERIA.

A disturbance among the native tribes of Liberia in a portion of the
Republic during the early part of this year resulted in the sending, under
the Treaty of 1862, of an American vessel of war to the disaffected
district, and the Liberian authorities, assisted by the good offices of the
American Naval Officers, were able to restore order. The negotiations which
have been undertaken for the amelioration of the conditions found in
Liberia by the American Commission, whose report I transmitted to Congress
on March 25 last, are being brought to conclusion, and it is thought that
within a short time practical measures of relief may be put into effect
through the good offices of this Government and the cordial cooperation of
other governments interested in Liberia's welfare.

THE NEAR EAST. TURKEY.

To return the visit of the Special Embassy announcing the accession of His
Majesty Mehemet V, Emperor of the Ottomans, I sent to Constantinople a
Special Ambassador who, in addition to this mission of ceremony, was
charged with the duty of expressing to the Ottoman Government the value
attached by the Government of the United States to increased and more
important relations between the countries and the desire of the United
States to contribute to the larger economic and commercial development due
to the new regime in Turkey.

The rapid development now beginning in that ancient empire and the marked
progress and increased commercial importance of Bulgaria, Roumania, and
Servia make it particularly opportune that the possibilities of American
commerce in the Near East should receive due attention. MONTENEGRO.

The National Skoupchtina having expressed its will that the Principality of
Montenegro be raised to the rank of Kingdom, the Prince of Montenegro on
August 15 last assumed the title of King of Montenegro. It gave me pleasure
to accord to the new kingdom the recognition of the United States.

THE FAR EAST.

The center of interest in Far Eastern affairs during the past year has
again been China.

It is gratifying to note that the negotiations for a loan to the Chinese
Government for the construction of the trunk railway lines from Hankow
southward to Canton and westward through the Yangtse Valley, known as the
Hukuang Loan, were concluded by the representatives of the various
financial groups in May last and the results approved by their respective
governments. The agreement, already initialed by the Chinese Government, is
now awaiting formal ratification. The basis of the settlement of the terms
of this loan was one of exact equality between America, Great Britain,
France, and Germany in respect to financing the loan and supplying
materials for the proposed railways and their future branches.

The application of the principle underlying the policy of the United States
in regard to the Hukuang Loan, viz., that of the internationalization of
the foreign interest in such of the railways of China as may be financed by
foreign countries, was suggested on a broader scale by the Secretary of
State in a proposal for internationalization and commercial neutralization
of all the railways of Manchuria. While the principle which led to the
proposal of this Government was generally admitted by the powers to whom it
was addressed, the Governments of Russia and Japan apprehended practical
difficulties in the execution of the larger plan which prevented their
ready adherence. The question of constructing the Chinchow-Aigun railway by
means of an international loan to China is, however, still the subject of
friendly discussion by the interested parties.

The policy of this Government in these matters has been directed by a
desire to make the use of American capital in the development of China an
instrument in the promotion of China's welfare and material prosperity
without prejudice to her legitimate rights as an independent political
power.

This policy has recently found further exemplification in the assistance
given by this Government to the negotiations between China and a group of
American bankers for a loan of $50,000,000 to be employed chiefly in
currency reform. The confusion which has from ancient times existed in the
monetary usages of the Chinese has been one of the principal obstacles to
commercial intercourse with that people. The United States in its Treaty of
1903 with China obtained a pledge from the latter to introduce a uniform
national coinage, and the following year, at the request of China, this
Government sent to Peking a member of the International Exchange
Commission, to discuss with the Chinese Government the best methods of
introducing the reform. In 1908 China sent a Commissioner to the United
States to consult with American financiers as to the possibility of
securing a large loan with which to inaugurate the new currency system, but
the death of Their Majesties, the Empress Dowager and the Emperor of China,
interrupted the negotiations, which were not resumed until a few months
ago, when this Government was asked to communicate to the bankers concerned
the request of China for a loan of $50,000,000 for the purpose under
review. A preliminary agreement between the American group and China has
been made covering the loan.

For the success of this loan and the contemplated reforms which are of the
greatest importance to the commercial interests of the United States and
the civilized world at large, it is realized that an expert will be
necessary, and this Government has received assurances from China that such
an adviser, who shall be an American, will be engaged.

It is a matter of interest to Americans to note the success which is
attending the efforts of China to establish gradually a system of
representative government. The provincial assemblies were opened in
October, 1909, and in October of the present year a consultative body, the
nucleus of the future national parliament, held its first session at
Peking.

The year has further been marked by two important international agreements
relating to Far Eastern affairs. In the Russo-Japanese Agreement relating
to Manchuria, signed July 4, 1910, this Government was gratified to note an
assurance of continued peaceful conditions in that region and the
reaffirmation of the policies with respect to China to which the United
States together with all other interested powers are alike solemnly
committed.

The treaty annexing Korea to the Empire of Japan, promulgated August 29,
1910, marks the final step in a process of control of the ancient empire by
her powerful neighbor that has been in progress for several years past. In
communicating the fact of annexation the Japanese Government gave to the
Government of the United States assurances of the full protection of the
rights of American citizens in Korea under the changed conditions.

Friendly visits of many distinguished persons from the Far East have been
made during the year. Chief among these were Their Imperial Highnesses
Princes Tsai-tao and Tsai-Hsun of China; and His Imperial Highness Prince
Higashi Fushimi, and Prince Tokugawa, President of the House of Peers of
Japan. The Secretary of War has recently visited Japan and China in
connection with his tour to the Philippines, and a large delegation of
American business men are at present traveling in China. This exchange of
friendly visits has had the happy effect of even further strengthening our
friendly international relations.

LATIN AMERICA.

During the past year several of our southern sister Republics celebrated
the one hundredth anniversary of their independence. In honor of these
events, special embassies were sent from this country to Argentina, Chile,
and Mexico, where the gracious reception and splendid hospitality extended
them manifested the cordial relations and friendship existing between those
countries and the United States, relations which I am happy to believe have
never before been upon so high a plane and so solid a basis as at present.

The Congressional commission appointed under a concurrent resolution to
attend the festivities celebrating the centennial anniversary of Mexican
independence, together with a special ambassador, were received with the
highest honors and with the greatest cordiality, and returned with the
report of the bounteous hospitality and warm reception of President Diaz
and the Mexican people, which left no doubt of the desire of the
immediately neighboring Republic to continue the mutually beneficial and
intimate relations which I feel sure the two governments will ever
cherish.

At the Fourth Pan-American Conference which met in Buenos Aires during July
and August last, after seven weeks of harmonious deliberation, three
conventions were signed providing for the regulation of trade-marks,
patents, and copyrights, which when ratified by the different Governments,
will go far toward furnishing to American authors, patentees, and owners of
trade-marks the protection needed in localities where heretofore it has
been either lacking or inadequate. Further, a convention for the
arbitration of pecuniary claims was signed and a number of important
resolutions passed. The Conventions will in due course be transmitted to
the Senate, and the report of the Delegation of the United States will be
communicated to the Congress for its information. The special cordiality
between representative men from all parts of America which was shown at
this Conference cannot fail to react upon and draw still closer the
relations between the countries which took part in it.

The International Bureau of American Republics is doing a broad and useful
work for Pan American commerce and comity. Its duties were much enlarged by
the International Conference of American States at Buenos Aires and its
name was shortened to the more practical and expressive term of Pan
American Union. Located now in its new building, which was specially
dedicated April 26 of this year to the development of friendship, trade and
peace among the American nations, it has improved instrumentalities to
serve the twenty-two republics of this hemisphere.

I am glad to say that the action of the United States in its desire to
remove imminent danger of war between Peru and Ecuador growing out of a
boundary dispute, with the cooperation of Brazil and the Argentine Republic
as joint mediators with this Government, has already resulted successfully
in preventing war. The Government of Chile, while not one of the mediators,
lent effective aid in furtherance of a preliminary agreement likely to lead
on to an amicable settlement, and it is not doubted that the good offices
of the mediating Powers and the conciliatory cooperation of the Governments
directly interested will finally lead to a removal of this perennial cause
of friction between Ecuador and Peru. The inestimable value of cordial
cooperation between the sister republics of America for the maintenance of
peace in this hemisphere has never been more clearly shown than in this
mediation, by which three American Governments have given to this
hemisphere the honor of first invoking the most far-reaching provisions of
The Hague Convention for the pacific settlement of international disputes.

There has been signed by the representatives of the United States and
Mexico a protocol submitting to the United States-Mexican Boundary
Commission (whose membership for the purpose of this case is to be
increased by the addition of a citizen of Canada) the question of
sovereignty over the Chamizal Tract which lies within the present physical
boundaries of the city of E1 Paso, Tex. The determination of this question
will remove a source of no little annoyance to the two Governments.

The Republic of Honduras has for many years been burdened with a heavy
bonded debt held in Europe, the interest on which long ago fell in arrears.
Finally conditions were such that it became imperative to refund the debt
and place the finances of the Republic upon a sound basis. Last year a
group of American bankers undertook to do this and to advance funds for
railway and other improvements contributing directly to the country's
prosperity and commerce--an arrangement which has long been desired by this
Government. Negotiations to this end have been under way for more than a
year and it is now confidently believed that a short time will suffice to
conclude an arrangement which will be satisfactory to the foreign
creditors, eminently advantageous to Honduras, and highly creditable to the
judgment and foresight of the Honduranean Government. This is much to be
desired since, as recognized by the Washington Conventions, a strong
Honduras would tend immensely to the progress and prosperity of Central
America.

During the past year the Republic of Nicaragua has been the scene of
internecine struggle. General Zelaya, for seventeen years the absolute
ruler of Nicaragua, was throughout his career the disturber of Central
America and opposed every plan for the promotion of peace and friendly
relations between the five republics. When the people of Nicaragua were
finally driven into rebellion by his lawless exactions, he violated the
laws of war by the unwarranted execution of two American citizens who had
regularly enlisted in the ranks of the revolutionists. This and other
offenses made it the duty of the American Government to take measures with
a view to ultimate reparation and for the safeguarding of its interests.
This involved the breaking off of all diplomatic relations with the Zelaya
Government for the reasons laid down in a communication from the Secretary
of State, which also notified the contending factions in Nicaragua that
this Government would hold each to strict accountability for outrages on
the rights of American citizens. American forces were sent to both coasts
of Nicaragua to be in readiness should occasion arise to protect Americans
and their interests, and remained there until the war was over and peace
had returned to that unfortunate country. These events, together with
Zelaya's continued exactions, brought him so clearly to the bar of public
opinion that he was forced to resign and to take refuge abroad.

In the above-mentioned communication of the Secretary of State to the
Charge d'Affaires of the Zelaya Government, the opinion was expressed that
the revolution represented the wishes of the majority of the Nicaraguan
people. This has now been proved beyond doubt by the fact that since the
complete overthrow of the Madriz Government and the occupation of the
capital by the forces of the revolution, all factions have united to
maintain public order and as a result of discussion with an Agent of this
Government, sent to Managua at the request of the Provisional Government,
comprehensive plans are being made for the future welfare of Nicaragua,
including the rehabilitation of public credit. The moderation and
conciliatory spirit shown by the various factions give ground for the
confident hope that Nicaragua will soon take its rightful place among the
law-abiding and progressive countries of the world.

It gratifies me exceedingly to announce that the Argentine Republic some
months ago placed with American manufacturers a contract for the
construction of two battle-ships and certain additional naval equipment.
The extent of this work and its importance to the Argentine Republic make
the placing of the bid an earnest of friendly feeling toward the United
States.

TARIFF NEGOTIATIONS.

The new tariff law, in section 2, respecting the maximum and minimum
tariffs of the United States, which provisions came into effect on April 1,
1910, imposed upon the President the responsibility of determining prior to
that date whether or not any undue discrimination existed against the
United States and its products in any country of the world with which we
sustained commercial relations.

In the case of several countries instances of apparent undue discrimination
against American commerce were found to exist. These discriminations were
removed by negotiation. Prior to April 1, 1910, when the maximum tariff was
to come into operation with respect to importations from all those
countries in whose favor no proclamation applying the minimum tariff should
be issued by the President, one hundred and thirty-four such proclamations
were issued. This series of proclamations embraced the entire commercial
world, and hence the minimum tariff of the United States has been given
universal application, thus testifying to the satisfactory character of our
trade relations with foreign countries.

Marked advantages to the commerce of the United States were obtained
through these tariff settlements. Foreign nations are fully cognizant of
the fact that under section 2 of the tariff act the President is required,
whenever he is satisfied that the treatment accorded by them to the
products of the United States is not such as to entitle them to the
benefits of the minimum tariff of the United States, to withdraw those
benefits by proclamation giving ninety days' notice, after which the
maximum tariff will apply to their dutiable products entering the United
States. In its general operation this section of the tariff law has thus
far proved a guaranty of continued commercial peace, although there are
unfortunately instances where foreign governments deal arbitrarily with
American interests within their jurisdiction in a manner injurious and
inequitable.

The policy of broader and closer trade relations with the Dominion of
Canada which was initiated in the adjustment of the maximum and minimum
provisions of the Tariff Act of August, 1909, has proved mutually
beneficial. It justifies further efforts for the readjustment of the
commercial relations of the two countries so that their commerce may follow
the channels natural to contiguous countries and be commensurate with the
steady expansion of trade and industry on both sides of the boundary line.
The reciprocation on the part of the Dominion Government of the sentiment
which was expressed by this Government was followed in October by the
suggestion that it would be glad to have the negotiations, which had been
temporarily suspended during the summer, resumed. In accordance with this
suggestion the Secretary of State, by my direction, dispatched two
representatives of the Department of State as special commissioners to
Ottawa to confer with representatives of the Dominion Government. They were
authorized to take such steps for formulating a reciprocal trade agreement
as might be necessary and to receive and consider any propositions which
the Dominion Government might care to submit.

Pursuant to the instructions issued conferences were held by these
commissioners with officials of the Dominion Government at Ottawa in the
early part of November.

The negotiations were conducted on both sides in a spirit of mutual
accommodation. The discussion of the common commercial interests of the two
countries had for its object a satisfactory basis for a trade arrangement
which offers the prospect of a freer interchange for the products of the
United States and of Canada. The conferences were adjourned to be resumed
in Washington in January, when it is hoped that the aspiration of both
Governments for a mutually advantageous measure of reciprocity will be
realized.

FOSTERING FOREIGN TRADE.

All these tariff negotiations, so vital to our commerce and industry, and
the duty of jealously guarding the equitable and just treatment of our
products, capital, and industry abroad devolve upon the Department of
State.

The Argentine battle-ship contracts, like the subsequent important one for
Argentine railway equipment, and those for Cuban Government vessels, were
secured for our manufacturers largely through the good offices of the
Department of State.

The efforts of that Department to secure for citizens of the United States
equal opportunities in the markets of the world and to expand American
commerce have been most successful. The volume of business obtained in new
fields of competition and upon new lines is already very great and Congress
is urged to continue to support the Department of State in its endeavors
for further trade expansion.

Our foreign trade merits the best support of the Government and the most
earnest endeavor of our manufacturers and merchants, who, if they do not
already in all cases need a foreign market, are certain soon to become
dependent on it. Therefore, now is the time to secure a strong position in
this field.

AMERICAN BRANCH BANKS ABROAD.

I cannot leave this subject without emphasizing the necessity of such
legislation as will make possible and convenient the establishment of
American banks and branches of American banks in foreign countries. Only by
such means can our foreign trade be favorably financed, necessary credits
be arranged, and proper avail be made of commercial opportunities in
foreign countries, and most especially in Latin America.

AID TO OUR FOREIGN MERCHANT MARINE.

Another instrumentality indispensable to the unhampered and natural
development of American commerce is merchant marine. All maritime and
commercial nations recognize the importance of this factor. The greatest
commercial nations, our competitors, jealously foster their merchant
marine. Perhaps nowhere is the need for rapid and direct mail, passenger
and freight communication quite so urgent as between the United States and
Latin America. We can secure in no other quarter of the world such
immediate benefits in friendship and commerce as would flow from the
establishment of direct lines Of communication with the countries of Latin
America adequate to meet the requirements of a rapidly increasing
appreciation of the reciprocal dependence of the countries of the Western
Hemisphere upon each other's products, sympathies and assistance.

I alluded to this most important subject in my last annual message; it has
often been before you and I need not recapitulate the reasons for its
recommendation. Unless prompt action be taken the completion of the Panama
Canal will find this the only great commercial nation unable to avail in
international maritime business of this great improvement in the means of
the world's commercial intercourse.

Quite aside from the commercial aspect, unless we create a merchant marine,
where can we find the seafaring population necessary as a natural naval
reserve and where could we find, in case of war, the transports and
subsidiary vessels without which a naval fleet is arms without a body? For
many reasons I cannot too strongly urge upon the Congress the passage of a
measure by mail subsidy or other subvention adequate to guarantee the
establishment and rapid development of an American merchant marine, and the
restoration of the American flag to its ancient place upon the seas.

Of course such aid ought only to be given under conditions of publicity of
each beneficiary's business and accounts which would show that the aid
received was needed to maintain the trade and was properly used for that
purpose.

FEDERAL PROTECTION TO ALIENS.

With our increasing international intercourse, it becomes incumbent upon me
to repeat more emphatically than ever the recommendation which I made in my
Inaugural Address that Congress shall at once give to the Courts of the
United States jurisdiction to punish as a crime the violation of the rights
of aliens secured by treaty with the United States, in order that the
general government of the United States shall be able, when called upon by
a friendly nation, to redeem its solemn promise by treaty to secure to the
citizens or subjects of that nation resident in the United States, freedom
from violence and due process of law in respect to their life, liberty and
property.

MERIT SYSTEM FOR DIPLOMATIC AND CONSULAR SERVICE.

I also strongly 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. The excellent results
which have attended the partial application of Civil Service principles to
the diplomatic and consular services are an earnest of the benefit to be
wrought by a wider and more permanent extension of those principles to both
branches of the foreign service. The marked improvement in the consular
service during the four years since the principles of the Civil Service Act
were applied to that service in a limited way, and the good results already
noticeable from a similar application of civil service principles to the
diplomatic service a year ago, convince me that the enactment into law of
the general principles of the existing executive regulations could not fail
to effect further improvement of both branches of the foreign service,
offering as it would by its assurance of permanency of tenure and promotion
on merit, an inducement for the entry of capable young men into the service
and an incentive to those already in to put forth their best efforts to
attain and maintain that degree of efficiency which the interests of our
international relations and commerce demand.

GOVERNMENT OWNERSHIP OF OUR EMBASSY AND LEGATION PREMISES.

During many years past appeals have been made from time to time to Congress
in favor of Government ownership of embassy and legation premises abroad.
The arguments in favor of such ownership have been many and oft repeated
and are well known to the Congress. The acquisition by the Government of
suitable residences and offices for its diplomatic officers, especially in
the capitals of the Latin-American States and of Europe, is so important
and necessary to an improved diplomatic service that I have no hesitation
in urging upon the Congress the passage of some measure similar to that
favorably reported by the House Committee on Foreign Affairs on February
14, 1910 (Report No. 438), that would authorize the gradual and annual
acquisition of premises for diplomatic use.

The work of the Diplomatic Service is devoid of partisanship; its
importance should appeal to every American citizen and should receive the
generous consideration of the Congress.

TREASURY DEPARTMENT.

ESTIMATES FOR NEXT YEAR'S EXPENSES.

Every effort has been made by each department chief to reduce the estimated
cost of his department for the ensuing fiscal year ending June 30, 1912. I
say this in order that Congress may understand that these estimates thus
made present the smallest sum which will maintain the departments, bureaus,
and offices of the Government and meet its other obligations under existing
law, and that a cut of these estimates would result in embarrassing the
executive branch of the Government in the performance of its duties. This
remark does not apply to the river and harbor estimates, except to those
for expenses of maintenance and the meeting of obligations under authorized
contracts, nor does it apply to the public building bill nor to the navy
building program. Of course, as to these Congress could withhold any part
or all of the estimates for them without interfering with the discharge of
the ordinary obligations of the Government or the performance of the
functions of its departments, bureaus, and offices.

A FIFTY-TWO MILLION CUT.

The final estimates for the year ending June 30, 1912, as they have been
sent to the Treasury, on November 29 of this year, for the ordinary
expenses of the Government, including those for public buildings, rivers
and harbors, and the navy building program, amount to $630,494,013.12. This
is $52,964,887.36 less than the appropriations for the fiscal year ending
June 30, 1911. It is $16,883,153.44 less than the total estimates,
including supplemental estimates submitted to Congress by the Treasury for
the year 1911, and is $5,574,659.39 less than the original estimates
submitted by the Treasury for 1911.

These figures do not include the appropriations for the Panama Canal, the
policy in respect to which ought to be, and is, to spend as much each year
as can be economically and effectively expended in order to complete the
Canal as promptly as possible, and, therefore, the ordinary motive for
cutting down the expense of the Government does not apply to appropriations
for this purpose. It will be noted that the estimates for the Panama Canal
for the ensuing year are more than fifty-six millions of dollars, an
increase of twenty millions over the amount appropriated for this year--a
difference due to the fact that the estimates for 1912 include something
over nineteen millions for the fortification of the Canal. Against the
estimated expenditures of $630,494,013.12, the Treasury has estimated
receipts for next year $680,000,000, making a probable surplus of ordinary
receipts over ordinary expenditures of about $50,000,000.

A table showing in detail the estimates and the comparisons referred to
follows.

TYPICAL ECONOMIES.

The Treasury Department is one of the original departments of the
Government. With the changes in the monetary system made from time to time
and with the creation of national banks, it was thought necessary to
organize new bureaus and divisions which were added in a somewhat haphazard
way and resulted in a duplication of duties which might well now be ended.
This lack of system and economic coordination has attracted the attention
of the head of that Department who has been giving his time for the last
two years, with the aid of experts and by consulting his bureau chiefs, to
its reformation. He has abolished four hundred places in the civil service
without at all injuring its efficiency. Merely to illustrate the character
of the reforms that are possible, I shall comment on some of the specific
changes that are being made, or ought to be made by legislative aid.

AUDITING SYSTEM.

The auditing system in vogue is as old as the Government and the methods
used are antiquated. There are six Auditors and seven Assistant Auditors
for the nine departments, and under the present system the only function
which the Auditor of a department exercises is to determine, on accounts
presented by disbursing officers, that the object of the expenditure was
within the law and the appropriation made by Congress for the purpose on
its face, and that the calculations in the accounts are correct. He does
not examine the merits of the transaction or determine the reasonableness
of the price paid for the articles purchased, nor does he furnish any
substantial check upon disbursing officers and the heads of departments or
bureaus with sufficient promptness to enable the Government to recoup
itself in full measure for unlawful expenditure. A careful plan is being
devised and will be presented to Congress with the recommendation that the
force of auditors and employees under them be greatly reduced, thereby
effecting substantial economy. But this economy will be small compared with
the larger economy that can be effected by consolidation and change of
methods. The possibilities in this regard have been shown in the reduction
of expenses and the importance of methods and efficiency in the office of
the Auditor for the Post Office Department, who, without in the slightest
degree impairing the comprehensiveness and efficiency of his work, has cut
down the expenses of his office $120,000 a year.

Statement of estimates of appropriations for the fiscal years 1912 and
1911, and of appropriations for 1911, showing increases and decreases. -
Final Estimates for 1912 as of November 29 - Original Estimates submitted
by the Treasury for 1911 - Total Estimates for 1911 including supplementals
- Appropriations for 1911 - Increase (+) and decrease (-), 1912 estimates
against 1911 total estimates - Increase (+) and decrease (-), 1912
estimates against 1911 total appropriations - Increase (+) and decrease
(-), 1911 estimates against 1911 total appropriations

Legislature - $13,426,805.73 - $13,169,679.70 - $13,169,679.70 -
$12,938,048.00 - + $257,126.03 - + $488,757.73 - + $231,631.70

Executive - 998,170.00 - 472,270.00 - 722,270.00 - 870,750.00 - +
275,900.00 - + 127,420.00 - - 148,480.00

State Department: - 4,875,576.41 - 4,875,301.41 - 4,749,801.41 -
5,046,701.41 - + 125,775.00 - - 171,125.00 - - 296,900.00

TREASURY DEPARTMENT: Treasury Department proper - 68,735,451.00 -
69,865,240.00 - 70,393,543.75 - 69,973,434.61 - - 1,658,092.75 - -
1,237,983.61 - + 420,109.14

Public buildings and works - 11,864,545.60 - 6,198,365.60 - 7,101,465.60 -
5,565,164.00 - + 4,763,080.00 - + 6,299,381.60 - + 1,536,301.60

Territorial governments - 202,150.00 - 287,350.00 - 292,350.00 - 282,600.00
- - 90,200.00 - - 80,450.00 - + 9,750.00

Independent offices - 2,638,695.12 - 2,400,695.12 - 2,492,695.12 -
2,128,695.12 - + 146,000.00 - + 510,000.00 - + 364,000.00

District of Columbia - 13,602,785.90 - 11,884,928.49 - 12,108,878.49 -
11,440,346.99 - + 1,492,907.41 - + 2,162,439.91 - + 668,532.50

WAR DEPARTMENT: War Department proper - 120,104,260.12 - 124,165,656.28 -
125,717,204.77 - 122,322,178.12 - - 5,612,944.65 - - 2,217,918.00 - +
3,395,026.65

Rivers and harbors - 28,232,438.00 - 28,232,465.00 - 28,232,465.00 -
49,390,541.50 - - 27.00 - -21,158,103.50 - -21,158,076.50

NAVY DEPARTMENT: Navy Department proper - 116,101,730.24 - 117,029,914.38 -
119,768,860.83 - 119,596,870.46 - - 3,667,130.59 - - 3,495,140.22 - +
171,990.37

New navy building program - 12,840,428.00 - 12,844,122.00 - 12,844,122.00 -
14,790,122.00 - - 3,694.00 - - 1,949,694.00 - - 1,946,000.00

Interior Department - 189,151,875.00 - 191,224,182.90 - 193,948,582.02 -
214,754,278.00 - - 4,796,707.02 - -25,602,403.00 - -20,805,698.98

Post-Office Department proper - 1,697,490.00 - 1,695,690.00 - 1,695,690.00
- 2,085,005.33 - + 1,800.00 - - 387,515.33 - - 389,315.33

Deficiency in postal revenues - --------------- - 10,634,122.63 -
10,634,122.63 - 10,634,122.63 - -10,634,122.65 - -10,634,122.63 -
-----------------

Department of Agriculture - 19,681,066.00 - 17,681,136.00 - 17,753,931.24 -
17,821,836.00 - + 1,927,134.76 - + 1,859,230.00 - - 67,904.76

Department of Commerce and

Labor - 16,276,970.00 - 14,187,913.00 - 15,789,271.00 - 14,169,969.32 - +
487,699.00 - + 2,107,000.68 - + 1,619,301.68

Department of Justice - 10,063,576.00 - 9,518,640.00 - 9,962,233.00 -
9,648,237.99 - + 101,343.00 - + 415,338.01 - + 313,995.01 -

***

State of the Union Address
William H. Taft
December 5, 1911

Jump to Part II | Part III | Part IV

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.

***

State of the Union Address
William H. Taft
December 3, 1912

Jump to Part II | Part III

To the Senate and House of Representatives:

The foreign relations of the United States actually and potentially affect
the state of the Union to a degree not widely realized and hardly surpassed
by any other factor in the welfare of the whole Nation. The position of the
United States in the moral, intellectual, and material relations of the
family of nations should be a matter of vital interest to every patriotic
citizen. The national prosperity and power impose upon us duties which we
can not shirk if we are to be true to our ideals. The tremendous growth of
the export trade of the United States has already made that trade a very
real factor in the industrial and commercial prosperity of the country.
With the development of our industries the foreign commerce of the United
States must rapidly become a still more essential factor in its economic
welfare. Whether we have a farseeing and wise diplomacy and are not
recklessly plunged into unnecessary wars, and whether our foreign policies
are based upon an intelligent grasp of present-day world conditions and a
clear view of the potentialities of the future, or are governed by a
temporary and timid expediency or by narrow views befitting an infant
nation, are questions in the alternative consideration of which must
convince any thoughtful citizen that no department of national polity
offers greater opportunity for promoting the interests of the whole people
on the one hand, or greater chance on the other of permanent national
injury, than that which deals with the foreign relations of the United
States.

The fundamental foreign policies of the United States should be raised high
above the conflict of partisanship and wholly dissociated from differences
as to domestic policy. In its foreign affairs the United States should
present to the world a united front. The intellectual, financial, and
industrial interests of the country and the publicist, the wage earner, the
farmer, and citizen of whatever occupation must cooperate in a spirit of
high patriotism to promote that national solidarity which is indispensable
to national efficiency and to the attainment of national ideals.

The relations of the United States with all foreign powers remain upon a
sound basis of peace, harmony, and friendship. A greater insistence upon
justice to American citizens or interests wherever it may have been denied
and a stronger emphasis of the need of mutuality in commercial and other
relations have only served to strengthen our friendships with foreign
countries by placing those friendships upon a firm foundation of realities
as well as aspirations.

Before briefly reviewing the more important events of the last year in our
foreign relations, which it is my duty to do as charged with their conduct
and because diplomatic affairs are not of a nature to make it appropriate
that the Secretary of State make a formal annual report, I desire to touch
upon some of the essentials to the safe management of the foreign relations
of the United States and to endeavor, also, to define clearly certain
concrete policies which are the logical modern corollaries of the
undisputed and traditional fundamentals of the foreign policy of the United
States.

REORGANIZATION OF THE STATE DEPARTMENT

At the beginning of the present administration the United States, having
fully entered upon its position as a world power, with the responsibilities
thrust upon it by the results of the Spanish-American War, and already
engaged in laying the groundwork of a vast foreign trade upon which it
should one day become more and more dependent, found itself without the
machinery for giving thorough attention to, and taking effective action
upon, a mass of intricate business vital to American interests in every
country in the world.

The Department of State was an archaic and inadequate machine lacking most
of the attributes of the foreign office of any great modern power. With an
appropriation made upon my recommendation by the Congress on August 5,
1909, the Department of State was completely reorganized. There were
created Divisions of Latin American Affairs and of Far Eastern, Near
Eastern, and Western European Affairs. To these divisions were called from
the foreign service diplomatic and consular officers possessing experience
and knowledge gained by actual service in different parts of the world and
thus familiar with political and commercial conditions in the regions
concerned. The work was highly specialized. The result is that where
previously this Government from time to time would emphasize in its foreign
relations one or another policy, now American interests in every quarter of
the globe are being cultivated with equal assiduity. This principle of
politico-geographical division possesses also the good feature of making
possible rotation between the officers of the departmental, the diplomatic,
and the consular branches of the foreign service, and thus keeps the whole
diplomatic and consular establishments tinder the Department of State in
close touch and equally inspired with the aims and policy of the
Government. Through the newly created Division of Information the foreign
service is kept fully informed of what transpires from day to day in the
international relations of the country, and contemporary foreign comment
affecting American interests is promptly brought to the attention of the
department. The law offices of the department were greatly strengthened.
There were added foreign trade advisers to cooperate with the diplomatic and
consular bureaus and the politico-geographical divisions in the innumerable
matters where commercial diplomacy or consular work calls for such special
knowledge. The same officers, together with the rest of the new
organization, are able at all times to give to American citizens accurate
information as to conditions in foreign countries with which they have
business and likewise to cooperate more effectively with the Congress and
also with the other executive departments.

MERIT SYSTEM IN CONSULAR AND DIPLOMATIC CORPS

Expert knowledge and professional training must evidently be the essence of
this reorganization. Without a trained foreign service there would not be
men available for the work in the reorganized Department of State.
President Cleveland had taken the first step toward introducing the merit
system in the foreign service. That had been followed by the application of
the merit principle, with excellent results, to the entire consular branch.
Almost nothing, however, had been done in this direction with regard to the
Diplomatic Service. In this age of commercial diplomacy it was evidently of
the first importance to train an adequate personnel in that branch of the
service. Therefore, on November 26, 1909, by an Executive order I placed
the Diplomatic Service up to the grade of secretary of embassy, inclusive,
upon exactly the same strict nonpartisan basis of the merit system, rigid
examination for appointment and promotion only for efficiency, as had been
maintained without exception in the Consular Service.

STATISTICS AS TO MERIT AND NONPARTISAN CHARACTER OF APPOINTMENTS

How faithful to the merit system and how nonpartisan has been the conduct
of the Diplomatic and Consular Services in the last four years may be
judged from the following: Three ambassadors now serving held their present
rank at the beginning of my administration. Of the ten ambassadors whom I
have appointed, five were by promotion from the rank of minister. Nine
ministers now serving held their present rank at the beginning of my
administration. Of the thirty ministers whom I have appointed, eleven were
promoted from the lower grades of the foreign service or from the
Department of State. Of the nineteen missions in Latin America, where our
relations are close and our interest is great, fifteen chiefs of mission
are service men, three having entered the service during this
administration. Thirty-seven secretaries of embassy or legation who have
received their initial appointments after passing successfully the required
examination were chosen for ascertained fitness, without regard to
political affiliations. A dearth of candidates from Southern and Western
States has alone made it impossible thus far completely to equalize all the
States' representations in the foreign service. In the effort to equalize
the representation of the various States in the Consular Service I have
made sixteen of the twenty-nine new appointments as consul which have
occurred during my administration from the Southern States. This is 55 per
cent. Every other consular appointment made, including the promotion of
eleven young men from the consular assistant and student interpreter corps,
has been by promotion or transfer, based solely upon efficiency shown in
the service.

In order to assure to the business and other interests of the United States
a continuance of the resulting benefits of this reform, I earnestly renew
my previous recommendations of legislation making it permanent along some
such lines as those of the measure now Pending in Congress.

LARGER PROVISION FOR EMBASSIES AND LEGATIONS AND FOR OTHER EXPENSES OF OUR
FOREIGN REPRESENTATIVES RECOMMENDED

In connection with legislation for the amelioration of the foreign service,
I wish to invite attention to the advisability of placing the salary
appropriations upon a better basis. I believe that the best results would
be obtained by a moderate scale of salaries, with adequate funds for the
expense of proper representation, based in each case upon the scale and
cost of living at each post, controlled by a system of accounting, and
under the general direction of the Department of State.

In line with the object which I have sought of placing our foreign service
on a basis of permanency, I have at various times advocated provision by
Congress for the acquisition of Government-owned buildings for the
residence and offices of our diplomatic officers, so as to place them more
nearly on an equality with similar officers of other nations and to do away
with the discrimination which otherwise must necessarily be made, in some
cases, in favor of men having large private fortunes. The act of Congress
which I approved on February 17, 1911, was a right step in this direction.
The Secretary of State has already made the limited recommendations
permitted by the act for any one year, and it is my hope that the bill
introduced in the House of Representatives to carry out these
recommendations will be favorably acted on by the Congress during its
present session.

In some Latin-American countries the expense of government-owned legations
will be less than elsewhere, and it is certainly very urgent that in such
countries as some of the Republics of Central America and the Caribbean,
where it is peculiarly difficult to rent suitable quarters, the
representatives of the United States should be justly and adequately
provided with dignified and suitable official residences. Indeed, it is
high time that the dignity and power of this great Nation should be
fittingly signalized by proper buildings for the occupancy of the Nation's
representatives everywhere abroad.

DIPLOMACY A HAND MAID OF COMMERCIAL INTERCOURSE AND PEACE

The diplomacy of the present administration has sought to respond to modern
ideas of commercial intercourse. This policy has been characterized as
substituting dollars for bullets. It is one that appeals alike to
idealistic humanitarian sentiments, to the dictates of sound policy and
strategy, and to legitimate commercial aims. It I is an effort frankly
directed to the increase of American trade upon the axiomatic principle
that the Government of the United States shall extend all proper support to
every legitimate and beneficial American enterprise abroad. How great have
been the results of this diplomacy, coupled with the maximum and minimum
provision of the tariff law, will be seen by some consideration of the
wonderful increase in the export trade of the United States. Because
modern diplomacy is commercial, there has been a disposition in some
quarters to attribute to it none but materialistic aims. How strikingly
erroneous is such an impression may be seen from a study of the results by
which the diplomacy of the United States can be judged.

SUCCESSFUL EFFORTS IN PROMOTION OF PEACE

In the field of work toward the ideals of peace this Government negotiated,
but to my regret was unable to consummate, two arbitration treaties which
set the highest mark of the aspiration of nations toward the substitution
of arbitration and reason for war in the settlement of international
disputes. Through the efforts of American diplomacy several wars have been
prevented or ended. I refer to the successful tripartite mediation of the
Argentine Republic, Brazil, and the United States between Peru and Ecuador;
the bringing of the boundary dispute between Panama and Costa Rica to
peaceful arbitration; the staying of warlike preparations when Haiti and
the Dominican Republic were on the verge of hostilities; the stopping of a
war in Nicaragua; the halting of internecine strife in Honduras. The
Government of the United States was thanked for its influence toward the
restoration of amicable relations between the Argentine Republic and
Bolivia. The diplomacy of the United States is active in seeking to assuage
the remaining ill-feeling between this country and the Republic of
Colombia. In the recent civil war in China the United States successfully
joined with the other interested powers in urging an early cessation of
hostilities. An agreement has been reached between the Governments of Chile
and Peru whereby the celebrated Tacna-Arica dispute, which has so long
embittered international relations on the west coast of South America, has
at last been adjusted. Simultaneously came the news that the boundary
dispute between Peru and Ecuador had entered upon a stage of amicable
settlement. The position of the United States in reference to the
Tacna-Arica dispute between Chile and Peru has been one of nonintervention,
but one of friendly influence and pacific counsel throughout the period
during which the dispute in question has been the subject of interchange of
views between this Government and the two Governments immediately
concerned. In the general easing of international tension on the west coast
of South America the tripartite mediation, to which I have referred, has
been a most potent and beneficent factor.

CHINA

In China the policy of encouraging financial investment to enable that
country to help itself has had the result of giving new life and practical
application to the open-door policy. The consistent purpose of the present
administration has been to encourage the use of American capital in the
development of China by the promotion of those essential reforms to which
China is pledged by treaties with the United States and other powers. The
hypothecation to foreign bankers in connection with certain industrial
enterprises, such as the Hukuang railways, of the national revenues upon
which these reforms depended, led the Department of State early in the
administration to demand for American citizens participation in such
enterprises, in order that the United States might have equal rights and an
equal voice in all questions pertaining to the disposition of the public
revenues concerned. The same policy of promoting international accord among
the powers having similar treaty rights as ourselves in the matters of
reform, which could not be put into practical effect without the common
consent of all, was likewise adopted in the case of the loan desired by
China for the reform of its currency. The principle of international
cooperation in matters of common interest upon which our policy had already
been based in all of the above instances has admittedly been a great factor
in that concert of the powers which has been so happily conspicuous during
the perilous period of transition through which the great Chinese nation
has been passing.

CENTRAL AMERICA NEEDS OUR HELP IN DEBT ADJUSTMENT

In Central America the aim has been to help such countries as Nicaragua and
Honduras to help themselves. They are the immediate beneficiaries. The
national benefit to the United States is twofold. First, it is obvious
that the Monroe doctrine is more vital in the neighborhood of the Panama
Canal and the zone of the Caribbean than anywhere else. There, too, the
maintenance of that doctrine falls most heavily upon the United States. It
is therefore essential that the countries within that sphere shall be
removed from the jeopardy involved by heavy foreign debt and chaotic
national finances and from the ever-present danger of international
complications due to disorder at home. Hence the United States has been
glad to encourage and support American bankers who were willing to lend a
helping hand to the financial rehabilitation of such countries because this
financial rehabilitation and the protection of their customhouses from
being the prey of would be dictators would remove at one stroke the menace
of foreign creditors and the menace of revolutionary disorder.

The second advantage of the United States is one affecting chiefly all the
southern and Gulf ports and the business and industry of the South. The
Republics of Central America and the Caribbean possess great natural
wealth. They need only a measure of stability and the means of financial
regeneration to enter upon an era of peace and prosperity, bringing profit
and happiness to themselves and at the same time creating conditions sure
to lead to a flourishing interchange of trade with this country.

I wish to call your especial attention to the recent occurrences in
Nicaragua, for I believe the terrible events recorded there during the
revolution of the past summer-the useless loss of life, the devastation of
property, the bombardment of defenseless cities, the killing and wounding
of women and children, the torturing of noncombatants to exact
contributions, and the suffering of thousands of human beings-might have
been averted had the Department of State, through approval of the loan
convention by the Senate, been permitted to carry out its now
well-developed policy of encouraging the extending of financial aid to weak
Central American States with the primary objects of avoiding just such
revolutions by assisting those Republics to rehabilitate their finances, to
establish their currency on a stable basis, to remove the customhouses from
the danger of revolutions by arranging for their secure administration, and
to establish reliable banks.

During this last revolution in Nicaragua, the Government of that Republic
having admitted its inability to protect American life and property against
acts of sheer lawlessness on the part of the malcontents, and having
requested this Government to assume that office, it became necessary to
land over 2,000 marines and bluejackets in Nicaragua. Owing to their
presence the constituted Government of Nicaragua was free to devote its
attention wholly to its internal troubles, and was thus enabled to stamp
out the rebellion in a short space of time. When the Red Cross supplies
sent to Granada had been exhausted, 8,000 persons having been given food in
one day upon the arrival of the American forces, our men supplied other
unfortunate, needy Nicaraguans from their own haversacks. I wish to
congratulate the officers and men of the United States navy and Marine
Corps who took part in reestablishing order in Nicaragua upon their
splendid conduct, and to record with sorrow the death of seven American
marines and bluejackets. Since the reestablishment of peace and order,
elections have been held amid conditions of quiet and tranquility. Nearly
all the American marines have now been withdrawn. The country should soon
be on the road to recovery. The only apparent danger now threatening
Nicaragua arises from the shortage of funds. Although American bankers have
already rendered assistance, they may naturally be loath to advance a loan
adequate to set the country upon its feet without the support of some such
convention as that of June, 1911, upon which the Senate has not yet acted.

ENFORCEMENT OF NEUTRALITY LAWS

In the general effort to contribute to the enjoyment of peace by those
Republics which are near neighbors of the United States, the administration
has enforced the so-called neutrality statutes with a new vigor, and those
statutes were greatly strengthened in restricting the exportation of arms
and munitions by the joint resolution of last March. It is still a
regrettable fact that certain American ports are made the rendezvous of
professional revolutionists and others engaged in intrigue against the
peace of those Republics. It must be admitted that occasionally a
revolution in this region is justified as a real popular movement to throw
off the shackles of a vicious and tyrannical government. Such was the
Nicaraguan revolution against the Zelaya regime. A nation enjoying our
liberal institutions can not escape sympathy with a true popular movement,
and one so well justified. In very many cases, however, revolutions in the
Republics in question have no basis in principle, but are due merely to the
machinations of conscienceless and ambitious men, and have no effect but to
bring new suffering and fresh burdens to an already oppressed people. The
question whether the use of American ports as foci of revolutionary
intrigue can be best dealt with by a further amendment to the neutrality
statutes or whether it would be safer to deal with special cases by special
laws is one worthy of the careful consideration of the Congress.

VISIT OF SECRETARY KNOX TO CENTRAL AMERICA AND THE CARIBBEAN

Impressed with the particular importance of the relations between the
United States and the Republics of Central America and the Caribbean
region, which of necessity must become still more intimate by reason of the
mutual advantages which will be presented by the opening of the Panama
Canal, I directed the Secretary of State last February to visit these
Republics for the purpose of giving evidence of the sincere friendship and
good will which the Government and people of the United States bear toward
them. Ten Republics were visited. Everywhere he was received with a
cordiality of welcome and a generosity of hospitality such as to impress me
deeply and to merit our warmest thanks. The appreciation of the Governments
and people of the countries visited, which has been appropriately shown in
various ways, leaves me no doubt that his visit will conduce to that closer
union and better understanding between the United States and those
Republics which I have had it much at heart to promote.

OUR MEXICAN POLICY

For two years revolution and counter-revolution has distraught the
neighboring Republic of Mexico. Brigandage has involved a great deal of
depredation upon foreign interests. There have constantly recurred
questions of extreme delicacy. On several occasions very difficult
situations have arisen on our frontier. Throughout this trying period, the
policy of the United States has been one of patient nonintervention,
steadfast recognition of constituted authority in the neighboring nation,
and the exertion of every effort to care for American interests. I
profoundly hope that the Mexican nation may soon resume the path of order,
prosperity, and progress. To that nation in its sore troubles, the
sympathetic friendship of the United States has been demonstrated to a high
degree. There were in Mexico at the beginning of the revolution some thirty
or forty thousand American citizens engaged in enterprises contributing
greatly to the prosperity of that Republic and also benefiting the
important trade between the two countries. The investment of American
capital in Mexico has been estimated at $1,000,000,000. The responsibility
of endeavoring to safeguard those interests and the dangers inseparable
from propinquity to so turbulent a situation have been great, but I am
happy to have been able to adhere to the policy above outlined-a policy
which I hope may be soon justified by the complete success of the Mexican
people in regaining the blessings of peace and good order.

AGRICULTURAL CREDITS

A most important work, accomplished in the past year by the American
diplomatic officers in Europe, is the investigation of the agricultural
credit system in the European countries. Both as a means to afford relief
to the consumers of this country through a more thorough development of
agricultural resources and as a means of more sufficiently maintaining the
agricultural population, the project to establish credit facilities for the
farmers is a concern of vital importance to this Nation. No evidence of
prosperity among well-established farmers should blind us to the fact that
lack of capital is preventing a development of the Nation's agricultural
resources and an adequate increase of the land under cultivation; that
agricultural production is fast falling behind the increase in population;
and that, in fact, although these well-established farmers are maintained
in increasing prosperity because of the natural increase in population, we
are not developing the industry of agriculture. We are not breeding in
proportionate numbers a race of independent and independence-loving
landowners, for a lack of which no growth of cities can compensate. Our
farmers have been our mainstay in times of crisis, and in future it must
still largely be upon their stability and common sense that this democracy
must rely to conserve its principles of self-government.

The need of capital which American farmers feel to-day had been experienced
by the farmers of Europe, with their centuries-old farms, many years ago.
The problem had been successfully solved in the Old World and it was
evident that the farmers of this country might profit by a study of their
systems. I therefore ordered, through the Department of State, an
investigation to be made by the diplomatic officers in Europe, and I have
laid the results of this investigation before the governors of the various
States with the hope that they will be used to advantage in their
forthcoming meeting.

INCREASE OF FOREIGN TRADE

In my last annual message I said that the fiscal year ended June 30, 1911,
was noteworthy as marking the highest record of exports of American
products to foreign countries. The fiscal year 1912 shows that this rate of
advance has been maintained, the total domestic exports having a valuation
approximately Of $2,200,000,000, as compared with a fraction over
$2,000,000,000 the previous year. It is also significant that manufactured
and partly manufactured articles continue to be the chief commodities
forming the volume of our augmented exports, the demands of our own people
for consumption requiring that an increasing proportion of our abundant
agricultural products be kept at home. In the fiscal year 1911 the exports
of articles in the various stages of manufacture, not including foodstuffs
partly or wholly manufactured, amounted approximately to $907,500,000. In
the fiscal year 1912 the total was nearly $1,022,000,000, a gain Of
$114,000,000.

ADVANTAGE OF MAXIMUM AND MINIMUM TARIFF PROVISION

The importance which our manufactures have assumed in the commerce of the
world in competition with the manufactures of other countries again draws
attention to the duty of this Government to use its utmost endeavors to
secure impartial treatment for American products in all markets. Healthy
commercial rivalry in international intercourse is best assured by the
possession of proper means for protecting and promoting our foreign trade.
It is natural that competitive countries should view with some concern this
steady expansion of our commerce. If in some instance the measures taken by
them to meet it are not entirely equitable, a remedy should be found. In
former messages I have described the negotiations of the Department of
State with foreign Governments for the adjustment of the maximum and
minimum tariff as provided in section 2 of the tariff law of 1909. The
advantages secured by the adjustment of our trade relations under this law
have continued during the last year, and some additional cases of
discriminatory treatment of which we had reason to complain have been
removed. The Department of State has for the first time in the history of
this country obtained substantial most-favored-nation treatment from all
the countries of the world. There are, however, other instances which,
while apparently not constituting undue discrimination in the sense of
section 2, are nevertheless exceptions to the complete equity of tariff
treatment for American products that the Department of State consistently
has sought to obtain for American commerce abroad.

NECESSITY FOR SUPPLEMENTARY LEGISLATION

These developments confirm the opinion conveyed to you in my annual message
of 1911, that while the maximum and minimum provision of the tariff law of
1909 has been fully justified by the success achieved in removing
previously existing undue discriminations against American products, yet
experience has shown that this feature of the law should be amended in such
way as to provide a fully effective means of meeting the varying degrees of
discriminatory treatment of American commerce in foreign countries still
encountered, as well as to protect against injurious treatment on the part
of foreign Governments, through either legislative or administrative
measures, the financial interests abroad of American citizens whose
enterprises enlarge the market for American commodities.

I can not too strongly recommend to the Congress the passage of some such
enabling measure as the bill which was recommended by the Secretary of
State in his letter of December 13, 1911. The object of the proposed
legislation is, in brief, to enable the Executive to apply, as the case may
require, to any or all commodities, whether or not on the free list from a
country which discriminates against the United States, a graduated scale of
duties up to the maximum Of 25 per cent ad valorem provided in the present
law. Flat tariffs are out of date. Nations no longer accord equal tariff
treatment to all other nations irrespective of the treatment from them
received. Such a flexible power at the command of the Executive would
serve to moderate any unfavorable tendencies on the part of those countries
from which the importations into the United States are substantially
confined to articles on the free list as well as of the countries which
find a lucrative market in the United States for their products under
existing customs rates. It is very necessary that the American Government
should be equipped with weapons of negotiation adapted to modern economic
conditions, in order that we may at all times be in a position to gain not
only technically just but actually equitable treatment for our trade, and
also for American enterprise and vested interests abroad.

BUSINESS SECURED TO OUR COUNTRY BY DIRECT OFFICIAL EFFORT

As illustrating the commercial benefits of the Nation derived from the new
diplomacy and its effectiveness upon the material as well as the more ideal
side, it may be remarked that through direct official efforts alone there
have been obtained in the course of this administration, contracts from
foreign Governments involving an expenditure of $50,000,000 in the
factories of the United States. Consideration of this fact and some
reflection upon the necessary effects of a scientific tariff system and a
foreign service alert and equipped to cooperate with the business men of
America carry the conviction that the gratifying increase in the export
trade of this country is, in substantial amount, due to our improved
governmental methods of protecting and stimulating it. It is germane to
these observations to remark that in the two years that have elapsed since
the successful negotiation of our new treaty with Japan, which at the time
seemed to present so many practical difficulties, our export trade to that
country has increased at the rate of over $1,000,000 a month. Our exports
to Japan for the year ended June 30, 1910, were $21,959,310, while for the
year ended June 30, 1912, the exports were $53,478,046, a net increase in
the sale of American products of nearly 150 per cent.

SPECIAL CLAIMS ARBITRATION WITH GREAT BRITAIN

Under the special agreement entered into between the United States and
Great Britain on August 18, 1910, for the arbitration of outstanding
pecuniary claims, a schedule of claims and the terms of submission have
been agreed upon by the two Governments, and together with the special
agreement were approved by the Senate on July 19, 1911, but in accordance
with the terms of the agreement they did not go into effect until confirmed
by the two Governments by an exchange of notes, which was done on April 26
last. Negotiations, are still in progress for a supplemental schedule of
claims to be submitted to arbitration under this agreement, and meanwhile
the necessary preparations for the arbitration of the claims included in
the first schedule have been undertaken and are being carried on under the
authority of an appropriation made for that purpose at the last session of
Congress. It is anticipated that the two Governments will be prepared to
call upon the arbitration tribunal, established under this agreement, to
meet at Washington early next year to proceed with this arbitration.

FUR SEAL TREATY AND NEED FOR AMENDMENT OF OUR STATUTE

The act adopted at the last session of Congress to give effect to the
fur-seal convention Of July 7, 1911, between Great Britain, Japan, Russia,
and the United States provided for the suspension of all land killing of
seals on the Pribilof Islands for a period of five years, and an objection
has now been presented to this provision by the other parties in interest,
which raises the issue as to whether or not this prohibition of land
killing is inconsistent with the spirit, if not the letter, of the treaty
stipulations. The justification of establishing this close season depends,
under the terms of the convention, upon how far, if at all, it is necessary
for protecting and preserving the American fur-seal herd and for increasing
its number. This is a question requiring examination of the present
condition of the herd and the treatment which it needs in the light of
actual experience and scientific investigation. A careful examination of
the subject is now being made, and this Government will soon be in
possession of a considerable amount of new information about the American
seal herd, which has been secured during the past season and will be of
great value in determining this question; and if it should appear that
there is any uncertainty as to the real necessity for imposing a close
season at this time I shall take an early opportunity to address a special
message to Congress on this subject, in the belief that this Government
should yield on this point rather than give the slightest ground for the
charge that we have been in any way remiss in observing our treaty
obligations.

FINAL SETTLEMENT OF NORTH ATLANTIC FISHERIES DISPUTE

On the 20th of July last an agreement was concluded between the United
States and Great Britain adopting, with certain modifications, the rules
and method of procedure recommended in the award rendered by the North
Atlantic Coast Fisheries Arbitration Tribunal on September 7, 1910, for the
settlement hereafter, in accordance with the principles laid down in the
award, of questions arising with reference to the exercise of the American
fishing liberties under Article I of the treaty of October 20, 1818,
between the United States and Great Britain. This agreement received the
approval of the Senate on August I and was formally ratified by the two
Governments on November 15 last. The rules and a method of procedure
embodied in the award provided for determining by an impartial tribunal the
reasonableness of any new fishery regulations on the treaty coasts of
Newfoundland and Canada before such regulations could be enforced against
American fishermen exercising their treaty liberties on those coasts, and
also for determining the delimitation of bays on such coasts more than 10
miles wide, in accordance with the definition adopted by the tribunal of
the meaning of the word "bays" as used in the treaty. In the subsequent
negotiations between the two Governments, undertaken for the purpose of
giving practical effect to these rules and methods of procedure, it was
found that certain modifications therein were desirable from the point of
view of both Governments, and these negotiations have finally resulted in
the agreement above mentioned by which the award recommendations as
modified by mutual consent of the two Governments are finally adopted and
made effective, thus bringing this century-old controversy to a final
conclusion, which is equally beneficial and satisfactory to both
Governments.

IMPERIAL VALLEY AND MEXICO

In order to make possible the more effective performance of the work
necessary for the confinement in their present channel of the waters of the
lower Colorado River, and thus to protect the people of the Imperial
Valley, as well as in order to reach with the Government of Mexico an
understanding regarding the distribution of the waters of the Colorado
River, in which both Governments are much interested, negotiations are
going forward with a view to the establishment of a preliminary Colorado
River commission, which shall have the powers necessary to enable it to do
the needful work and with authority to study the question of the equitable
distribution of the waters. There is every reason to believe that an
understanding upon this point will be reached and that an agreement will be
signed in the near future.

CHAMIZAL DISPUTE

In the interest of the people and city of El Paso this Government has been
assiduous in its efforts to bring to an early settlement the long-standing
Chamizal dispute with Mexico. Much has been accomplished, and while the
final solution of the dispute is not immediate, the favorable attitude
lately assumed by the Mexican Government encourages the hope that this
troublesome question will be satisfactorily and definitively settled at an
early day.

INTERNATIONAL COMMISSION OF JURISTS

In pursuance of the convention of August 23, 1906, signed at the Third Pan
American Conference, held at Rio de Janeiro, the International Commission
of jurists met at that capital during the month of last June. At this
meeting 16 American Republics were represented, including the United
States, and comprehensive plans for the future work of the commission were
adopted. At the next meeting fixed for June, 1914, committees already
appointed are instructed to I report regarding topics assigned to them.

OPIUM CONFERENCE-UNFORTUNATE FAILURE OF OUR GOVERNMENT TO ENACT RECOMMENDED
LEGISLATION

In my message on foreign relations communicated to the two Houses of
Congress December 7, 1911, I called especial attention to the assembling of
the Opium Conference at The Hague, to the fact that that conference was to
review all pertinent municipal laws relating to the opium and allied evils,
and certainly all international rules regarding these evils, and to the
-fact that it seemed to me most essential that the Congress should take
immediate action on the anti-narcotic legislation before the Congress, to
which I had previously called attention by a special message.

The international convention adopted by the conference conforms almost
entirely to the principles contained in the proposed anti-narcotic
legislation which has been before the last two Congresses. It was most
unfortunate that this Government, having taken the initiative in the
international action which eventuated in the important international opium
convention, failed to do its share in the great work by neglecting to pass
the necessary legislation to correct the deplorable narcotic evils in the
United States as well as to redeem international pledges upon which it
entered by virtue of the above-mentioned convention. The Congress at its
present session should enact into law those bills now before it which have
been so carefully drawn up in collaboration between the Department of State
and the other executive departments, and which have behind them not only
the moral sentiment of the country, but the practical support of all the
legitimate trade interests likely to be affected. Since the international
convention was signed, adherence to it has been made by several European
States not represented at the conference at The Hague and also by seventeen
Latin-American Republics.

EUROPE AND THE NEAR EAST

The war between Italy and Turkey came to a close in October last by the
signature of a treaty of peace, subsequently to which the Ottoman Empire
renounced sovereignty over Cyrenaica and Tripolitania in favor of Italy.
During the past year the Near East has unfortunately been the theater of
constant hostilities. Almost simultaneously with the conclusion of peace
between Italy and Turkey and their arrival at an adjustment of the complex
questions at issue between them, war broke out between Turkey on the one
hand and Bulgaria, Greece, Montenegro, and Servia on the other. The United
States has happily been involved neither directly nor indirectly with the
causes or questions incident to any of these hostilities and has maintained
in regard to them an attitude of absolute neutrality and of complete
political disinterestedness. In the second war in which the Ottoman Empire
has been engaged the loss of life and the consequent distress on both sides
have been appalling, and the United States has found occasion, in the
interest of humanity, to carry out the charitable desires of the American
people, to extend a measure of relief to the sufferers on either side
through the impartial medium of the Red Cross. Beyond this the chief care
of the Government of the United States has been to make due provision for
the protection of its national resident in belligerent territory. In the
exercise of my duty in this matter I have dispatched to Turkish waters a
special-service squadron, consisting of two armored cruisers, in order that
this Government may if need be bear its part in such measures as it may be
necessary for the interested nations to adopt for the safeguarding of
foreign lives and property in the Ottoman Empire in the event that a
dangerous situation should develop. In the meanwhile the several interested
European powers have promised to extend to American citizens the benefit of
such precautionary or protective measures as they might adopt, in the same
manner in which it has been the practice of this Government to extend its
protection to all foreign residents in those countries of the Western
Hemisphere in which it has from time to time been the task of the United
States to act in the interest of peace and good order. The early appearance
of a large fleet of European warships in the Bosphorus apparently assured
the protection of foreigners in that quarter, where the presence of the
American stationnaire the U. S. S. Scorpion sufficed, tinder the
circumstances, to represent the United States. Our cruisers were thus left
free to act if need be along the Mediterranean coasts should any unexpected
contingency arise affecting the numerous American interests in the
neighborhood of Smyrna and Beirut.

SPITZBERGEN

The great preponderance of American material interests in the sub-arctic
island of Spitzbergen, which has always been regarded politically as "no
man's land," impels this Government to a continued and lively interest in
the international dispositions to be made for the political governance and
administration of that region. The conflict of certain claims of American
citizens and others is in a fair way to adjustment, while the settlement of
matters of administration, whether by international conference of the
interested powers or otherwise, continues to be the subject of exchange of
views between the Governments concerned.

LIBERIA

As a result of the efforts of this Government to place the Government of
Liberia in position to pay its outstanding indebtedness and to maintain a
stable and efficient government, negotiations for a loan of $1,700,000 have
been successfully concluded, and it is anticipated that the payment of the
old loan and the issuance of the bonds of the 1912 loan for the
rehabilitation of the finances of Liberia will follow at an early date,
when the new receivership will go into active operation. The new
receivership will consist of a general receiver of customs designated by
the Government of the United States and three receivers of customs
designated by the Governments of Germany, France, and Great Britain, which
countries have commercial interests in the Republic of Liberia.

In carrying out the understanding between the Government of Liberia and
that of the United States, and in fulfilling the terms of the agreement
between the former Government and the American bankers, three competent
ex-army officers are now effectively employed by the Liberian Government in
reorganizing the police force of the Republic, not only to keep in order
the native tribes in the hinterland but to serve as a necessary police
force along the frontier. It is hoped that these measures will assure not
only the continued existence but the prosperity and welfare of the Republic
of Liberia. Liberia possesses fertility of soil and natural resources,
which should insure to its people a reasonable prosperity. It was the duty
of the United States to assist the Republic of Liberia in accordance with
our historical interest and moral guardianship of a community founded by
American citizens, as it was also the duty of the American Government to
attempt to assure permanence to a country of much sentimental and perhaps
future real interest to a large body of our citizens.

MOROCCO

The legation at Tangier is now in charge of our consul general, who is
acting as charge d'affaires, as well as caring for our commercial interests
in that country. In view of the fact that many of the foreign powers are
now represented by charges d'affaires it has not been deemed necessary to
appoint at the present time a minister to fill a vacancy occurring in that
post.

THE FAR EAST

The political disturbances in China in the autumn and winter of 1911-12
resulted in the abdication of the Manchu rulers on February 12, followed by
the formation of a provisional republican government empowered to conduct
the affairs of the nation until a permanent government might be regularly
established. The natural sympathy of the American people with the
assumption of republican principles by the Chinese people was appropriately
expressed in a concurrent resolution of Congress on April 17, 1912. A
constituent assembly, composed of representatives duly chosen by the people
of China in the elections that are now being held, has been called to meet
in January next to adopt a permanent constitution and organize the
Government of the nascent Republic. During the formative constitutional
stage and pending definite action by the assembly, as expressive of the
popular will, and the hoped-for establishment of a stable republican form
of government, capable of fulfilling its international obligations, the
United States is, according to precedent, maintaining full and friendly de
facto relations with the provisional Government.

The new condition of affairs thus created has presented many serious and
complicated problems, both of internal rehabilitation and of international
relations, whose solution it was realized would necessarily require much
time and patience. From the beginning of the upheaval last autumn it was
felt by the United States, in common with the other powers having large
interests in China, that independent action by the foreign Governments in
their own individual interests would add further confusion to a situation
already complicated. A policy of international cooperation was accordingly
adopted in an understanding, reached early in the disturbances, to act
together for the protection of the lives and property of foreigners if
menaced, to maintain an attitude of strict impartiality as between the
contending factions, and to abstain from any endeavor to influence the
Chinese in their organization of a new form of government. In view of the
seriousness of the disturbances and their general character, the American
minister at Peking was instructed at his discretion to advise our nationals
in the affected districts to concentrate at such centers as were easily
accessible to foreign troops or men of war. Nineteen of our naval vessels
were stationed at various Chinese ports, and other measures were promptly
taken for the adequate protection of American interests.

It was further mutually agreed, in the hope of hastening an end to
hostilities, that none of the interested powers would approve the making of
loans by its nationals to either side. As soon, however, as a united
provisional Government of China was assured, the United States joined in a
favorable consideration of that Government's request for advances needed
for immediate administrative necessities and later for a loan to effect a
permanent national reorganization. The interested Governments had already,
by common consent, adopted, in respect to the purposes, expenditure, and
security of any loans to China made by their nationals, certain conditions
which were held to be essential, not only to secure reasonable protection
for the foreign investors, but also to safeguard and strengthen China's
credit by discouraging indiscriminate borrowing and by insuring the
application of the funds toward the establishment of the stable and
effective government necessary to China's welfare. In June last
representative banking groups of the United States, France, Germany, Great
Britain, Japan, and Russia formulated, with the general sanction of their
respective Governments, the guaranties that would be expected in relation
to the expenditure and security of the large reorganization loan desired by
China, which, however, have thus far proved unacceptable to the provisional
Government.

SPECIAL MISSION OF CONDOLENCE TO JAPAN

In August last I accredited the Secretary of State as special ambassador to
Japan, charged with the mission of bearing to the imperial family, the
Government, and the people of that Empire the sympathetic message of the
American Commonwealth oil the sad occasion of the death of His Majesty the
Emperor Mutsuhito, whose long and benevolent reign was the greater part of
Japan's modern history. The kindly reception everywhere accorded to
Secretary Knox showed that his mission was deeply appreciated by the
Japanese nation and emphasized strongly the friendly relations that have
for so many years existed between the two peoples.

SOUTH AMERICA

Our relations with the Argentine Republic are most friendly and cordial.
So, also, are our relations with Brazil, whose Government has accepted the
invitation of the United States to send two army officers to study at the
Coast Artillery School at Fort Monroe. The long-standing Alsop claim, which
had been the only hindrance to the healthy growth of the most friendly
relations between the United States and Chile, having been eliminated
through the submission of the question to His Britannic Majesty King George
V as "amiable compositeur," it is a cause of much gratification to me that
our relations with Chile are now established upon a firm basis of growing
friendship. The Chilean Government has placed an officer of the United
States Coast Artillery in charge of the Chilean Coast Artillery School, and
has shown appreciation of American methods by confiding to an American firm
important work for the Chilean coast defenses.

Last year a revolution against the established Government of Ecuador broke
out at the principal port of that Republic. Previous to this occurrence the
chief American interest in Ecuador, represented by the Guayaquil & Quito
Railway Co., incorporated in the United States, had rendered extensive
transportation and other services on account to the Ecuadorian Government,
the amount of which ran into a sum which was steadily increasing and which
the Ecuadorian Government had made no provision to pay, thereby threatening
to crush out the very existence of this American enterprise. When
tranquillity had been restored to Ecuador as a result of the triumphant
progress of the Government forces from Quito, this Government interposed
its good offices to the end that the American interests in Ecuador might be
saved from complete extinction. As a part of the arrangement which was
reached between the parties, and at the request of the Government of
Ecuador, I have consented to name an arbitrator, who, acting under the
terms of the railroad contract, with an arbitrator named by the Ecuadorian
Government, will pass upon the claims that have arisen since the
arrangement reached through the action of a similar arbitral tribunal in
1908.

In pursuance of a request made some time ago by the Ecuadorian Government,
the Department of State has given much attention to the problem of the
proper sanitation of Guayaquil. As a result a detail of officers of the
Canal Zone will be sent to Guayaquil to recommend measures that will lead
to the complete permanent sanitation of this plague and fever infected
region of that Republic, which has for so long constituted a menace to
health conditions on the Canal Zone. It is hoped that the report which this
mission will furnish will point out a way whereby the modicum of assistance
which the United States may properly lend the Ecuadorian Government may be
made effective in ridding the west coast of South America of a focus of
contagion to the future commercial current passing through the Panama
Canal.

In the matter of the claim of John Celestine Landreau against the
Government of Peru, which claim arises out of certain contracts and
transactions in connection with the discovery and exploitation of guano,
and which has been under discussion between the two Governments since 1874,
I am glad to report that as the result of prolonged negotiations, which
have been characterized by the utmost friendliness and good will on both
sides, the Department of State has succeeded in securing the consent of
Peru to the arbitration of the claim, and that the negotiations attending
the drafting and signature of a protocol submitting the claim to an
arbitral tribunal are proceeding with due celerity.

An officer of the American Public Health Service and an American sanitary
engineer are now on the way to Iquitos, in the employ of the Peruvian
Government, to take charge of the sanitation of that river port. Peru is
building a number of submarines in this country, and continues to show
every desire to have American capital invested in the Republic.

In July the United States sent undergraduate delegates to the Third
International Students Congress held at Lima, American students having been
for the first time invited to one of these meetings.

The Republic of Uruguay has shown its appreciation of American agricultural
and other methods by sending a large commission to this country and by
employing many American experts to assist in building up agricultural and
allied industries in Uruguay.

Venezuela is paying off the last of the claims the settlement of which was
provided for by the Washington protocols, including those of American
citizens. Our relations with Venezuela are most cordial, and the trade of
that Republic with the United States is now greater than with any other
country.

CENTRAL AMERICA AND THE CARIBBEAN

During the past summer the revolution against the administration which
followed the assassination of President Caceres a year ago last November
brought the Dominican Republic to the verge of administrative chaos,
without offering any guaranties of eventual stability in the ultimate
success of either party. In pursuance of the treaty relations of the United
States with the Dominican Republic, which were threatened by the necessity
of suspending the operation under American administration of the
customhouses on the Haitian frontier, it was found necessary to dispatch
special commissioners to the island to reestablish the customhouses and
with a guard sufficient to insure needed protection to the customs
administration. The efforts which have been made appear to have resulted in
the restoration of normal conditions throughout the Republic. The good
offices which the commissioners were able to exercise were instrumental in
bringing the contending parties together and in furnishing a basis of
adjustment which it is hoped will result in permanent benefit to the
Dominican people.

Mindful of its treaty relations, and owing to the position of the
Government of the United States as mediator between the Dominican Republic
and Haiti in their boundary dispute, and because of the further fact that
the revolutionary activities on the Haitian-Dominican frontier had become
so active as practically to obliterate the line of demarcation that had
been heretofore recognized pending the definitive settlement of the
boundary in controversy, it was found necessary to indicate to the two
island Governments a provisional de facto boundary line. This was done
without prejudice to the rights or obligations of either country in a final
settlement to be reached by arbitration. The tentative line chosen was one
which, under the circumstances brought to the knowledge of this Government,
seemed to conform to the best interests of the disputants. The border
patrol which it had been found necessary to reestablish for customs
purposes between the two countries was instructed provisionally to observe
this line.

The Republic of Cuba last May was in the throes of a lawless uprising that
for a time threatened the destruction of a great deal of valuable
property-much of it owned by Americans and other foreigners-as well as the
existence of the Government itself. The armed forces of Cuba being
inadequate to guard property from attack and at the same time properly to
operate against the rebels, a force of American marines was dispatched from
our naval station at Guantanamo into the Province of Oriente for the
protection of American and other foreign life and property. The Cuban
Government was thus able to use all its forces in putting down the
outbreak, which it succeeded in doing in a period of six weeks. The
presence of two American warships in the harbor of Habana during the most
critical period of this disturbance contributed in great measure to allay
the fears of the inhabitants, including a large foreign colony.

There has been under discussion with the Government of Cuba for some time
the question of the release by this Government of its leasehold rights at
Bahia Honda, on the northern coast of Cuba, and the enlargement, in
exchange therefor, of the naval station which has been established at
Guantanamo Bay, on the south. As the result of the negotiations thus
carried on an agreement has been reached between the two Governments
providing for the suitable enlargement of the Guantanamo Bay station upon
terms which are entirely fair and equitable to all parties concerned.

At the request alike of the Government and both political parties in
Panama, an American commission undertook supervision of the recent
presidential election in that Republic, where our treaty relations, and,
indeed, every geographical consideration, make the maintenance of order and
satisfactory conditions of peculiar interest to the Government of the
United States. The elections passed without disorder, and the new
administration has entered upon its functions.

The Government of Great Britain has asked the support of the United States
for the protection of the interests of British holders of the foreign
bonded debt of Guatemala. While this Government is hopeful of an
arrangement equitable to the British bondholders, it is naturally unable to
view the question apart from its relation to the broad subject of financial
stability in Central America, in which the policy of the United States does
not permit it to escape a vital interest. Through a renewal of negotiations
between the Government of Guatemala and American bankers, the aim of which
is a loan for the rehabilitation of Guatemalan finances, a way appears to
be open by which the Government of Guatemala could promptly satisfy any
equitable and just British claims, and at the same time so improve its
whole financial position as to contribute greatly to the increased
prosperity of the Republic and to redound to the benefit of foreign
investments and foreign trade with that country. Failing such an
arrangement, it may become impossible for the Government of the United
States to escape its obligations in connection with such measures as may
become necessary to exact justice to legitimate foreign claims.

In the recent revolution in Nicaragua, which, it was generally admitted,
might well have resulted in a general Central American conflict but for the
intervention of the United States, the Government of Honduras was
especially menaced; but fortunately peaceful conditions were maintained
within the borders of that Republic. The financial condition of that
country remains unchanged, no means having been found for the final
adjustment of pressing outstanding foreign claims. This makes it the more
regrettable that the financial convention between the United States and
Honduras has thus far failed of ratification. The Government of the United
States continues to hold itself ready to cooperate with the Government of
Honduras, which it is believed, can not much longer delay the meeting of
its foreign obligations, and it is hoped at the proper time American
bankers will be willing to cooperate for this purpose.

NECESSITY FOR GREATER GOVERNMENTAL EFFORT IN RETENTION AND EXPANSION OF OUR
FOREIGN TRADE

It is not possible to make to the Congress a communication upon the present
foreign relations of the United States so detailed as to convey an adequate
impression of the enormous increase in the importance and activities of
those relations. If this Government is really to preserve to the American
people that free opportunity in foreign markets which will soon be
indispensable to our prosperity, even greater efforts must be made.
Otherwise the American merchant, manufacturer, and exporter will find many
a field in which American trade should logically predominate preempted
through the more energetic efforts of other governments and other
commercial nations.

There are many ways in which through hearty cooperation the legislative and
executive branches of this Government can do much. The absolute essential
is the spirit of united effort and singleness of purpose. I will allude
only to a very few specific examples of action which ought then to result.
America can not take its proper place in the most important fields for its
commercial activity and enterprise unless we have a merchant marine.
American commerce and enterprise can not be effectively fostered in those
fields unless we have good American banks in the countries referred to. We
need American newspapers in those countries and proper means for public
information about them. We need to assure the permanency of a trained
foreign service. We need legislation enabling the members of the foreign
service to be systematically brought in direct contact with the industrial,
manufacturing, and exporting interests of this country in order that
American business men may enter the foreign field with a clear perception
of the exact conditions to be dealt with and the officers themselves may
prosecute their work with a clear idea of what American industrial and
manufacturing interests require.

CONCLUSION

Congress should fully realize the conditions which obtain in the world as
we find ourselves at the threshold of our middle age as a Nation. We have
emerged full grown as a peer in the great concourse of nations. We have
passed through various formative periods. We have been self-centered in the
struggle to develop our domestic resources and deal with our domestic
questions. The Nation is now too matured to continue in its foreign
relations those temporary expedients natural to a people to whom domestic
affairs are the sole concern. In the past our diplomacy has often
consisted, in normal times, in a mere assertion of the right to
international existence. We are now in a larger relation with broader
rights of our own and obligations to others than ourselves. A number of
great guiding principles were laid down early in the history of this
Government. The recent task of our diplomacy has been to adjust those
principles to the conditions of to-day, to develop their corollaries, to
find practical applications of the old principles expanded to meet new
situations. Thus are being evolved bases upon which can rest the
superstructure of policies which must grow with the destined progress of
this Nation. The successful conduct of our foreign relations demands a
broad and a modern view. We can not meet new questions nor build for the
future if we confine ourselves to outworn dogmas of the past and to the
perspective appropriate at our emergence from colonial times and
conditions. The opening of the Panama Canal will mark a new era in our
international life and create new and worldwide conditions which, with
their vast correlations and consequences, will obtain for hundreds of years
to come. We must not wait for events to overtake us unawares. With
continuity of purpose we must deal with the problems of our external
relations by a diplomacy modern, resourceful, magnanimous, and fittingly
expressive of the high ideals of a great nation.

Part II.[On Fiscal, judicial, Military and Insular Affairs.] THE WHITE
HOUSE, December 6, 1912. To the Senate and House of Representatives:

On the 3d of December I sent a message to the Congress, which was confined
to our foreign relations. The Secretary of State makes no report to the
President or to Congress, and a review of the history of the transactions
of the State Department in one year must therefore be included by the
President in his annual message or Congress will not be fully informed of
them. A full discussion of all the transactions of the Government, with a
view to informing the Congress of the important events of the year and
recommending new legislation, requires more space than one message of
reasonable length affords. I have therefore adopted the course of sending
three or four messages during the first ten days of the session, so as to
include reference to the more important matters that should be brought to
the attention of the Congress.

BUSINESS CONDITIONS

The condition of the country with reference to business could hardly be
better. While the four years of the administration now drawing to a close
have not developed great speculative expansion or a wide field of new
investment, the recovery and progress made from the depressing conditions
following the panic of 1907 have been steady and the improvement has been
clear and easily traced in the statistics. The business of the country is
now on a solid basis. Credits are not unduly extended, and every phase of
the situation seems in a state of preparedness for a period of unexampled
prosperity. Manufacturing concerns are running at their full capacity and
the demand for labor was never so constant and growing. The foreign trade
of the country for this year will exceed $4,000,000,000, while the balance
in our favor-that of the excess of exports over imports-will exceed
$500,000,000. More than half our exports are manufactures or partly
manufactured material, while our exports of farm products do not show the
same increase because of domestic consumption. It is a year of bumper
crops; the total money value of farm products will exceed $9,500,000,000.
It is a year when the bushel or unit price of agricultural products has
gradually fallen, and yet the total value of the entire crop is greater by
over $1,000,000,000 than we have known in our history.

CONDITION OF THE TREASURY

The condition of the Treasury is very satisfactory. The total
interest-bearing debt is $963,777,770, of which $134,631,980 constitute the
Panama Canal loan. The noninterest-bearing debt is $378,301,284.90,
including $346,681,016 of greenbacks. We have in the Treasury $150,000,000
in gold coin as a reserve against the outstanding greenbacks; and in
addition we have a cash balance in the Treasury as a general fund of
$167,152,478.99, or an increase of $26,975,552 over the general fund last
year.

RECEIPTS AND EXPENDITURES

For three years the expenditures of the Government have decreased under the
influence of an effort to economize. This year presents an apparent
exception. The estimate by the Secretary of the Treasury of the ordinary
receipts, exclusive of postal revenues, for the year ending June 30, 1914,
indicates that they will amount to $710,000,000. The sum of the estimates
of the expenditures for that same year, exclusive of Panama Canal
disbursements and postal disbursements payable from postal revenues, is
$732,000,000, indicating a deficit Of $22,000,000. For the year ending June
30, 1913, similarly estimated receipts were $667,000,000, while the total
corresponding estimate of expenditures for that year, submitted through the
Secretary of the Treasury to Congress, amounted to $656,000,000. This shows
an increase of $76,000,000 in the estimates for 1914 over the total
estimates of 1913. This is due to an increase Of $25,000,000 in the
estimate for rivers and harbors for the next year on projects and surveys
authorized by Congress; to an increase under the new pension bill Of
$32,500,000; and to an increase in the estimates for expenses of the Navy
Department Of $24,000,000. The estimate for the Navy Department for the
year 1913 included two battleships. Congress made provision for only one
battleship, and therefore the Navy Department has deemed it necessary and
proper to make an estimate which includes the first year's expenditure for
three battleships in addition to the amount required for work on the
uncompleted ships now under construction. In addition to the natural
increase in the expenditures for the uncompleted ships, and the additional
battleship estimated for, the other increases are due to the pay
required for 4,000 or more additional enlisted men in the Navy; and to this
must be added the additional cost of construction imposed by the change in
the eight-hour law which makes it applicable to ships built in private
shipyards.

With the exceptions of these three items, the estimates show a reduction
this year below the total estimates for 1913 of more than $5,000,000.

The estimates for Panama Canal construction for 1914 are $17,000,000 less
than for 1913.

OUR BANKING AND CURRENCY SYSTEM

A time when panics seem far removed is the best time for us to prepare our
financial system to withstand a storm. The most crying need this country
has is a proper banking and currency system. The existing one is
inadequate, and everyone who has studied the question admits it.

It is the business of the National Government to provide a medium,
automatically contracting and expanding in volume, to meet the needs of
trade. Our present system lacks the indispensable quality of elasticity.

The only part of our monetary medium that has elasticity is the bank-note
currency. The peculiar provisions of the law requiring national banks to
maintain reserves to meet the call of the depositors operates to increase
the money stringency when it arises rather than to expand the supply of
currency and relieve it. It operates upon each bank and furnishes a motive
for the withdrawal of currency from the channels of trade by each bank to
save itself, and offers no inducement whatever for the use of the reserve
to expand the supply of currency to meet the exceptional demand.

After the panic of 1907 Congress realized that the present system was not
adapted to the country's needs and that under it panics were possible that
might properly be avoided by legislative provision. Accordingly a monetary
commission was appointed which made a report in February, 1912. The system
which they recommended involved a National Reserve Association, which was,
in certain of its faculties and functions, a bank, and which was given
through its governing authorities the power, by issuing circulating notes
for approved commercial paper, by fixing discounts, and by other methods of
transfer of currency, to expand the supply of the monetary medium where it
was most needed to prevent the export or hoarding of gold and generally to
exercise such supervision over the supply of money in every part of the
country as to prevent a stringency and a panic. The stock in this
association was to be distributed to the banks of the whole United States,
State and National, in a mixed proportion to bank units and to capital
stock paid in. The control of the association was vested in a board of
directors to be elected by representatives of the banks, except certain
ex-officio directors, three Cabinet officers, and the Comptroller of the
Currency. The President was to appoint the governor of the association from
three persons to be selected by the directors, while the two deputy
governors were to be elected by the board of directors. The details of the
plan were worked out with great care and ability, and the plan in general
seems to me to furnish the basis for a proper solution of our present
difficulties. I feel that the Government might very properly be given a
greater voice in the executive committee of the board of directors without
danger of injecting politics into its management, but I think the
federation system of banks is a good one, provided proper precautions are
taken to prevent banks of large capital from absorbing power through
ownership of stock in other banks. The objections to a central bank it
seems to me are obviated if the ownership of the reserve association is
distributed among all the banks of a country in which banking is free. The
earnings of the reserve association are limited in percentage tit a
reasonable and fixed amount, and the profits over and above this are to be
turned into the Government Treasury. It is quite probable that still
greater security against control by money centers may be worked into the
plan.

Certain it is, however, that the objections which were made in the past
history of this country to a central bank as furnishing a monopoly of
financial power to private individuals, would not apply to an association
whose ownership and control is so widely distributed and is divided between
all the banks of the country, State and National, on the one hand, and the
Chief Executive through three department heads and his Comptroller of the
Currency, on the other. The ancient hostility to a national bank, with its
branches, in which is concentrated the privilege of doing a banking
business and carrying on the financial transactions of the Government, has
prevented the establishment of such a bank since it was abolished in the
Jackson Administration. Our present national banking law has obviated
objections growing out of the same cause by providing a free banking system
in which any set of stockholders can establish a national bank if they
comply with the conditions of law. It seems to me that the National Reserve
Association meets the same objection in a similar way; that is, by giving
to each bank, State and National, in accordance with its size, a certain
share in the stock of the reserve association, nontransferable and only to
be held by the bank while it performs its functions as a partner in the
reserve association.

The report of the commission recommends provisions for the imposition of a
graduated tax on the expanded currency of such a character as to furnish a
motive for reducing the issue of notes whenever their presence in the money
market is not required by the exigencies of trade. In other words, the
whole system has been worked out with the greatest care. Theoretically it
presents a plan that ought to command support. Practically it may require
modification in various of its provisions in order to make the security
against, abuses by combinations among the banks impossible. But in the face
of the crying necessity that there is for improvement in our present
system, I urgently invite the attention of Congress to the proposed plan
and the report of the commission, with the hope that an earnest
consideration may suggest amendments and changes within the general plan
which will lead to its adoption for the benefit of the country. There is no
class in the community more interested in a safe and sane banking and
currency system, one which will prevent panics and automatically furnish in
each trade center the currency needed in the carrying on of the business at
that center, than the wage earner. There is no class in the community whose
experience better qualifies them to make suggestions as to the sufficiency
of a currency and banking system than the bankers and business men. Ought
we, therefore, to ignore their recommendations and reject their financial
judgment as to the proper method of reforming our financial system merely
because of the suspicion which exists against them in the minds of many of
our fellow citizens? Is it not the duty of Congress to take up the plan
suggested, examine it from all standpoints, give impartial consideration to
the testimony of those whose experience ought to fit them to give the best
advice on the subject, and then to adopt some plan which will secure the
benefits desired?

A banking and currency system seems far away from the wage earner and the
farmer, but the fact is that they are vitally interested in a safe system
of currency which shall graduate its volume to the amount needed and which
shall prevent times of artificial stringency that frighten capital, stop
employment, prevent the meeting of the pay roll, destroy local markets, and
produce penury and want.

THE TARIFF

I have regarded it as my duty in former messages to the Congress to urge
the revision of the tariff upon principles of protection. It was my
judgment that the customs duties ought to be revised downward, but that the
reduction ought not to be below a rate which would represent the difference
in the cost of production between the article in question at home and
abroad, and for this and other reasons I vetoed several bills which were
presented to me in the last session of this Congress. Now that a new
Congress has been elected on a platform of a tariff for revenue only rather
than a protective tariff, and is to revise the tariff on that basis, it is
needless for me to occupy the time of this Congress with arguments or
recommendations in favor of a protective tariff.

Before passing from the tariff law, however, known as the Payne tariff law
of August 5, 1909, I desire to call attention to section 38 of that act,
assessing a special excise tax on corporations. It contains a provision
requiring the levy of an additional 50 per cent to the annual tax in cases
of neglect to verify the prescribed return or to file it before the time
required by law. This additional charge of 50 per cent operates in some
cases as a harsh penalty for what may have been a mere inadvertence or
unintentional oversight, and the law should be so amended as to mitigate
the severity of the charge in such instances. Provision should also be made
for the refund of additional taxes heretofore collected because of such
infractions in those cases where the penalty imposed has been so
disproportionate to the offense as equitably to demand relief.

BUDGET

The estimates for the next fiscal year have been assembled by the Secretary
of the Treasury and by him transmitted to Congress. I purpose at a later
day to submit to Congress a form of budget prepared for me and recommended
by the President's Commission on Economy and Efficiency, with a view of
suggesting the useful and informing character of a properly framed budget.

WAR DEPARTMENT

The War Department combines within its jurisdiction functions which in
other countries usually occupy three departments. It not only has the
management of the Army and the coast defenses, but its jurisdiction extends
to the government of the Philippines and of Porto Rico and the control of
the receivership of the customs revenues of the Dominican Republic; it also
includes the recommendation of all plans for the improvement of harbors and
waterways and their execution when adopted; and, by virtue of an Executive
order, the supervision of the construction of the Panama Canal.

ARMY REORGANIZATION

Our small Army now consists of 83,809 men, excluding the 5,000 Philippine
scouts. Leaving out of consideration the Coast Artillery force, whose
position is fixed in our various seacoast defenses, and the present
garrisons of our various insular possessions, we have to-day within the
continental United States a mobile Army of only about 35,000 men. This
little force must be still further drawn upon to supply the new garrisons
for the great naval base which is being established at Pearl Harbor, in the
Hawaiian Islands, and to protect the locks now rapidly approaching
completion at Panama. The forces remaining in the United States are now
scattered in nearly 50 Posts, situated for a variety of historical reasons
in 24 States. These posts contain only fractions of regiments, averaging
less than 700 men each. In time of peace it has been our historical policy
to administer these units separately by a geographical organization. In
other words, our Army in time of peace has never been a united organization
but merely scattered groups of companies, battalions, and regiments, and
the first task in time of war has been to create out of these scattered
units an Army fit for effective teamwork and cooperation.

To the task of meeting these patent defects, the War Department has been
addressing itself during the past year. For many years we had no officer or
division whose business it was to study these problems and plan remedies
for these defects. With the establishment of the General Staff nine years
ago a body was created for this purpose. It has, necessarily, required time
to overcome, even in its own personnel, the habits of mind engendered by a
century of lack of method, but of late years its work has become systematic
and effective, and it has recently been addressing itself vigorously to
these problems.

A comprehensive plan of Army reorganization was prepared by the War College
Division of the General Staff. This plan was thoroughly discussed last
summer at a series of open conferences held by the Secretary of War and
attended by representatives from all branches of the Army and from
Congress. In printed form it has been distributed to Members of Congress
and throughout the Army and the National Guard, and widely through
institutions of learning and elsewhere in the United States. In it, for the
first time, we have a tentative chart for future progress.

Under the influence of this study definite and effective steps have been
taken toward Army reorganization so far as such reorganization lies within
the Executive power. Hitherto there has been no difference of policy in the
treatment of the organization of our foreign garrisons from those of troops
within the United States. The difference of situation is vital, and the
foreign garrison should be prepared to defend itself at an instant's notice
against a foe who may command the sea. Unlike the troops in the United
States, it can not count upon reinforcements or recruitment. It is an
outpost upon which will fall the brunt of the first attack in case of war.
The historical policy of the United States of carrying its regiments during
time of peace at half strength has no application to our foreign garrisons.
During the past year this defect has been remedied as to the Philippines
garrison. The former garrison of 12 reduced regiments has been replaced by
a garrison of 6 regiments at full strength, giving fully the same number of
riflemen at an estimated economy in cost of maintenance of over $1,000,000
per year. This garrison is to be permanent. Its regimental units, instead
of being transferred periodically back and forth from the United States,
will remain in the islands. The officers and men composing these units
will, however, serve a regular tropical detail as usual, thus involving no
greater hardship upon the personnel and greatly increasing the
effectiveness of the garrison. A similar policy is proposed for the
Hawaiian and Panama garrisons as fast as the barracks for them are
completed. I strongly urge upon Congress that the necessary appropriations
for this purpose should be promptly made. It is, in my opinion, of first
importance that these national outposts, upon which a successful home
defense will, primarily, depend, should be finished and placed in effective
condition at the earliest possible day.

THE HOME ARMY

Simultaneously with the foregoing steps the War Department has been
proceeding with the reorganization of the Army at home. The formerly
disassociated units are being united into a tactical organization of three
divisions, each consisting of two or three brigades of Infantry and, so far
as practicable, a proper proportion of divisional Cavalry and Artillery. Of
course, the extent to which this reform can be carried by the Executive is
practically limited to a paper organization. The scattered units can be
brought under a proper organization, but they will remain physically
scattered until Congress supplies the necessary funds for grouping them in
more concentrated posts. Until that is done the present difficulty of
drilling our scattered groups together, and thus training them for the
proper team play, can not be removed. But we shall, at least, have an Army
which will know its own organization and will be inspected by its proper
commanders, and to which, as a unit, emergency orders can be issued in time
of war or other emergency. Moreover, the organization, which in many
respects is necessarily a skeleton, will furnish a guide for future
development. The separate regiments and companies will know the brigades
and divisions to which they belong. They will be maneuvered together
whenever maneuvers are established by Congress, and the gaps in their
organization will show the pattern into which can be filled new troops as
the Nation grows and a larger Army is provided.

REGULAR ARMY RESERVE

One of the most important reforms accomplished during the past year has
been the legislation enacted in the Army appropriation bill of last summer,
providing for a Regular Army reserve. Hitherto our national policy has
assumed that at the outbreak of war our regiments would be immediately
raised to full strength. But our laws have provided no means by which this
could be accomplished, or by which the losses of the regiments when once
sent to the front could be repaired. In this respect we have neglected the
lessons learned by other nations. The new law provides that the soldier,
after serving four years with colors, shall pass into a reserve for three
years. At his option he may go into the reserve at the end of three years,
remaining there for four years. While in the reserve he can be called to
active duty only in case of war or other national emergency, and when so
called and only in such case will receive a stated amount of pay for all of
the period in which he has been a member of the reserve. The legislation is
imperfect, in my opinion, in certain particulars, but it is a most
important step in the right direction, and I earnestly hope that it will be
carefully studied and perfected by Congress.

THE NATIONAL GUARD

Under existing law the National Guard constitutes, after the Regular Army,
the first line of national defense. Its organization, discipline, training,
and equipment, under recent legislation, have been assimilated, as far as
possible, to those of the Regular Army, and its practical efficiency, under
the effect of this training, has very greatly increased. Our citizen
soldiers under present conditions have reached a stage of development
beyond which they can not reasonably be asked to go without further direct
assistance in the form of pay from the Federal Government. On the other
hand, such pay from the National Treasury would not be justified unless it
produced a proper equivalent in additional efficiency on the part of the
National Guard. The Organized Militia to-day can not be ordered outside of
the limits of the United States, and thus can not lawfully be used for
general military purposes. The officers and men are ambitious and eager to
make themselves thus available and to become an efficient national reserve
of citizen soldiery. They are the only force of trained men, other than the
Regular Army, upon which we can rely. The so-called militia pay bill, in
the form agreed on between the authorities of the War Department and the
representatives of the National Guard, in my opinion adequately meets these
conditions and offers a proper return for the pay which it is proposed to
give to the National Guard. I believe that its enactment into law would be
a very long step toward providing this Nation with a first line of citizen
soldiery, upon which its main reliance must depend in case of any national
emergency. Plans for the organization of the National Guard into tactical
divisions, on the same lines as those adopted for the Regular Army, are
being formulated by the War College Division of the General Staff.

NATIONAL VOLUNTEERS

The National Guard consists of only about 110,000 men. In any serious war
in the past it has always been necessary, and in such a war in the future
it doubtless will be necessary, for the Nation to depend, in addition to
the Regular Army and the National Guard, upon a large force of volunteers.
There is at present no adequate provision of law for the raising of such a
force. There is now pending in Congress, however, a bill which makes such
provision, and which I believe is admirably adapted to meet the exigencies
which would be presented in case of war. The passage of the bill would not
entail a dollar's expense upon the Government at this time or in the future
until war comes. But if war comes the methods therein directed are in
accordance with the best military judgment as to what they ought to be, and
the act would prevent the necessity for a discussion of any legislation and
the delays incident to its consideration and adoption. I earnestly urge its
passage.

CONSOLIDATION OF THE SUPPLY CORPS

The Army appropriation act of 191:2 also carried legislation for the
consolidation of the Quartermaster's Department, the Subsistence
Department, and the Pay Corps into a single supply department, to be known
as the Quartermaster's Corps. It also provided for the organization of a
special force of enlisted men, to be known as the Service Corps, gradually
to replace many of the civilian employees engaged in the manual labor
necessary in every army. I believe that both of these enactments will
improve the administration of our military establishment. The consolidation
of the supply corps has already been effected, and the organization of the
service corps is being put into effect.

All of the foregoing reforms are in the direction of economy and
efficiency. Except for the slight increase necessary to garrison our
outposts in Hawaii and Panama, they do not call for a larger Army, but they
do tend to produce a much more efficient one. The only substantial new
appropriations required are those which, as I have pointed out, are
necessary to complete the fortifications and barracks at our naval bases
and outposts beyond the sea.

PORTO RICO

Porto Rico continues to show notable progress, both commercially and in the
spread of education. Its external commerce has increased 17 per cent over
the preceding year, bringing the total value up to $92,631,886, or more
than five times the value of the commerce of the island in 1901. During the
year 160,657 Pupils were enrolled in the public schools, as against 145,525
for the preceding year, and as compared with 26,000 for the first year of
American administration. Special efforts are under way for the promotion of
vocational and industrial training, the need of which is particularly
pressing in the island. When the bubonic plague broke out last June, the
quick and efficient response of the people of Porto Rico to the demands of
modern sanitation was strikingly shown by the thorough campaign which was
instituted against the plague and the hearty public opinion which supported
the Government's efforts to check its progress and to prevent its
recurrence.

The failure thus far to grant American citizenship continues to be the only
ground of dissatisfaction. The bill conferring such citizenship has passed
the House of Representatives and is now awaiting the action of the Senate.
I am heartily in favor of the passage of this bill. I believe that the
demand for citizenship is just, and that it is amply earned by sustained
loyalty on the part of the inhabitants of the island. But it should be
remembered that the demand must be, and in the minds of most Porto Ricans
is, entirely disassociated from any thought of statehood. I believe that no
substantial approved public opinion in the United States or in Porto Rico
contemplates statehood for the island as the ultimate form of relations
between us. I believe that the aim to be striven for is the fullest
possible allowance of legal and fiscal self-government, with American
citizenship as to the bond between us; in other words, a relation analogous
to the present relation between Great Britain and such self-governing
colonies as Canada and Australia. This would conduce to the fullest and
most self-sustaining development of Porto Rico, while at the same time it
would grant her the economic and political benefits of being under the
American flag.

PHILIPPINES

A bill is pending in Congress which revolutionizes the carefully worked out
scheme of government under which the Philippine Islands are now governed
and which proposes to render them virtually autonomous at once and
absolutely independent in eight years. Such a proposal can only be founded
on the assumption that we have now discharged our trusteeship to the
Filipino people and our responsibility for them to the world, and that they
are now prepared for self-government as well as national sovereignty. A
thorough and unbiased knowledge of the facts clearly shows that these
assumptions are absolutely without justification. As to this, I believe
that there is no substantial difference of opinion among any of those who
have had the responsibility of facing Philippine problems in the
administration of the islands, and I believe that no one to whom the future
of this people is a responsible concern can countenance a policy fraught
with the direst consequences to those on whose behalf it is ostensibly
urged.

In the Philippine Islands we have embarked upon an experiment unprecedented
in dealing with dependent people. We are developing there conditions
exclusively for their own welfare. We found an archipelago containing 24
tribes and races, speaking a great variety of languages, and with a
population over 80 per cent of which could neither read nor write. Through
the unifying forces of a common education, of commercial and economic
development, and of gradual participation in local self-government we are
endeavoring to evolve a homogeneous people fit to determine, when the time
arrives, their own destiny. We are seeking to arouse a national spirit and
not, as under the older colonial theory, to suppress such a spirit. The
character of the work we have been doing is keenly recognized in the
Orient, and our success thus far followed with not a little envy by those
who, initiating the same policy, find themselves hampered by conditions
grown up in earlier days and under different theories of administration.
But our work is far from done. Our duty to the Filipinos is far from
discharged. Over half a million Filipino students are now in the Philippine
schools helping to mold the men of the future into a homogeneous people,
but there still remain more than a million Filipino children of school age
yet to be reached. Freed from American control the integrating forces of a
common education and a common language will cease and the educational
system now well started will slip back into inefficiency and disorder.

An enormous increase in the commercial development of the islands has been
made since they were virtually granted full access to our markets three
years ago, with every prospect of increasing development and diversified
industries. Freed from American control such development is bound to
decline. Every observer speaks of the great progress in public works for
the benefit of the Filipinos, of harbor improvements, of roads and
railways, of irrigation and artesian wells, public buildings, and better
means of communication. But large parts of the islands are still unreached,
still even unexplored, roads and railways are needed in many parts,
irrigation systems are still to be installed, and wells to be driven. Whole
villages and towns are still without means of communication other than
almost impassable roads and trails. Even the great progress in sanitation,
which has successfully suppressed smallpox, the bubonic plague, and Asiatic
cholera, has found the cause of and a cure for beriberi, has segregated the
lepers, has helped to make Manila the most healthful city in the Orient,
and to free life throughout the whole archipelago from its former dread
diseases, is nevertheless incomplete in many essentials of permanence in
sanitary policy. Even more remains to be accomplished. If freed from
American control sanitary progress is bound to be arrested and all that has
been achieved likely to be lost.

Concurrent with the economic, social, and industrial development of the
islands has been the development of the political capacity of the people.
By their progressive participation in government the Filipinos are being
steadily and hopefully trained for self-government. Under Spanish control
they shared in no way in the government. Under American control they have
shared largely and increasingly. Within the last dozen years they have
gradually been given complete autonomy in the municipalities, the right to
elect two-thirds of the provincial governing boards and the lower house of
the insular legislature. They have four native members out of nine members
of the commission, or upper house. The chief justice and two justices of
the supreme court, about one-half of the higher judicial positions, and all
of the justices of the peach are natives. In the classified civil service
the proportion of Filipinos increased from 51 per cent in 1904 to 67 per
cent in 1911. Thus to-day all the municipal employees, over go per cent of
the provincial employees, and 60 per cent of the officials and employees of
the central government are Filipinos. The ideal which has been kept in mind
in our political guidance of the islands has been real popular
self-government and not mere paper independence. I am happy to say that the
Filipinos have done well enough in the places they have filled and in the
discharge of the political power with which they have been intrusted to
warrant the belief that they can be educated and trained to complete
self-government. But the present satisfactory results are due to constant
support and supervision at every step by Americans.

If the task we have undertaken is higher than that assumed by other
nations, its accomplishment must demand even more patience. We must not
forget that we found the Filipinos wholly untrained in government. Up to
our advent all other experience sought to repress rather than encourage
political power. It takes long time and much experience to ingrain
political habits of steadiness and efficiency. Popular self-government
ultimately must rest upon common habits of thought and upon a reasonably
developed public opinion. No such foundations for self-government, let alone
independence are now present in the Philippine Islands. Disregarding even
their racial heterogeneity and the lack of ability to think as a nation, it
is sufficient to point out that under liberal franchise privileges only
about 3 per cent of the Filipinos vote and only 5 per cent of the people
are said to read the public press. To confer independence upon the
Filipinos now is, therefore, to subject the great mass of their people to
the dominance of an oligarchical and, probably, exploiting minority. Such a
course will be as cruel to those people as it would be shameful to us.

Our true course is to pursue steadily and courageously the path we have
thus far followed; to guide the Filipinos into self-sustaining pursuits; to
continue the cultivation of sound political habits through education and
political practice; to encourage the diversification of industries, and to
realize the advantages of their industrial education by conservatively
approved cooperative methods, at once checking the dangers of concentrated
wealth and building up a sturdy, independent citizenship. We should do all
this with a disinterested endeavor to secure for the Filipinos economic
independence and to fit them for complete self-government, with the power
to decide eventually, according to their own largest good, whether such
self-government shall be accompanied by independence. A present declaration
even of future independence would retard progress by the dissension and
disorder it would arouse. On our part it would be a disingenuous attempt,
under the guise of conferring a benefit on them, to relieve ourselves from
the heavy and difficult burden which thus far we have been bravely and
consistently sustaining. It would be a disguised policy of scuttle. It
would make the helpless Filipino the football of oriental politics, tinder
the protection of a guaranty of their independence, which we would be
powerless to enforce.

REGULATION OF WATER POWER

There are pending before Congress a large number of bills proposing to
grant privileges of erecting dams for the purpose of creating water power
in our navigable rivers. The pendency of these bills has brought out an
important defect in the existing general dam act. That act does not, in my
opinion, grant sufficient power to the Federal Government in dealing with
the construction of such dams to exact protective conditions in the
interest of navigation. It does not permit the Federal Government, as a
condition of its permit, to require that a part of the value thus created
shall be applied to the further general improvement and protection of the
stream. I believe this to be one of the most important matters of internal
improvement now confronting the Government. Most of the navigable rivers of
this country are comparatively long and shallow. In order that they may be
made fully useful for navigation there has come into vogue a method of
improvement known as canalization, or the slack-water method, which
consists in building a series of dams and locks, each of which will create
a long pool of deep navigable water. At each of these dams there is usually
created also water power of commercial value. If the water power thus
created can be made available for the further improvement of navigation in
the stream, it is manifest that the improvement will be much more quickly
effected on the one hand, and, on the other, that the burden on the general
taxpayers of the country will be very much reduced. Private interests
seeking permits to build water-power dams in navigable streams usually urge
that they thus improve navigation, and that if they do not impair
navigation they should be allowed to take for themselves the entire profits
of the water-power development. Whatever they may do by way of relieving
the Government of the expense of improving navigation should be given due
consideration, but it must be apparent that there may be a profit beyond a
reasonably liberal return upon the private investment which is a potential
asset of the Government in carrying out a comprehensive policy of waterway
development. It is no objection to the retention and use of such an asset
by the Government that a comprehensive waterway policy will include the
protection and development of the other public uses of water, which can not
and should not be ignored in making and executing plans for the protection
and development of navigation. It is also equally clear that inasmuch as
the water power thus created is or may be an incident of a general scheme
of waterway improvement within the constitutional jurisdiction of the
Federal Government, the regulation of such water power lies also within
that jurisdiction. In my opinion constructive statesmanship requires that
legislation should be enacted which will permit the development of
navigation in these great rivers to go hand in hand with the utilization of
this by-product of water power, created in the course of the same
improvement, and that the general dam act should be so amended as to make
this possible. I deem it highly important that the Nation should adopt a
consistent and harmonious treatment of these water-power projects, which
will preserve for this purpose their value to the Government, whose right
it is to grant the permit. Any other policy is equivalent to throwing away
a most valuable national asset.

THE PANAMA CANAL

During the past year the work of construction upon the canal has progressed
most satisfactorily. About 87 per cent of the excavation work has been
completed, and more than 93 per cent of the concrete for all the locks is
in place. In view of the great interest which has been manifested as to
some slides in the Culebra Cut, I am glad to say that the report of Col.
Goethals should allay any apprehension on this point. It is gratifying to
note that none of the slides which occurred during this year would have
interfered with the passage of the ships had the canal, in fact, been in
operation, and when the slope pressures will have been finally adjusted and
the growth of vegetation will minimize erosion in the banks of the cut, the
slide problem will be practically solved and an ample stability assured for
the Culebra Cut.

Although the official date of the opening has been set for January 1, 1915,
the canal will, in fact, from present indications, be opened for shipping
during the latter half of 1913. No fixed date can as yet be set, but
shipping interests will be advised as soon as assurances can be given that
vessels can pass through without unnecessary delay.

Recognizing the administrative problem in the management of the canal,
Congress in the act of August 24, 1912, has made admirable provisions for
executive responsibility in the control of the canal and the government of
the Canal Zone. The problem of most efficient organization is receiving
careful consideration, so that a scheme of organization and control best
adapted to the conditions of the canal may be formulated and put in
operation as expeditiously as possible. Acting tinder the authority
conferred on me by Congress, I have, by Executive proclamation, promulgated
the following schedule of tolls for ships passing through the canal, based
upon the thorough report of Emory R. Johnson, special commissioner on
traffic and tolls:

I. On merchant vessels carrying passengers or cargo, $1.20 per net vessel
ton-each 100 cubic feet-of actual earning capacity. 2. On vessels in
ballast without passengers or cargo, 40 per cent less than the rate of
tolls for vessels with passengers or cargo. 3. Upon naval vessels, other
than transports, colliers, hospital ships, and supply ships, 50 cents per
displacement ton. 4. Upon Army and Navy transports, colliers, hospital
ships, and supply ships, $1.20 per net ton, the vessels to be measured by
the same rules as are employed in determining the net tonnage of merchant
vessels. Rules for the determination of the tonnage upon which toll charges
are based are now in course of preparation and will be promulgated in due
season.

PANAMA CANAL TREATY

The proclamation which I have issued in respect to the Panama Canal tolls
is in accord with the Panama Canal act passed by this Congress August 24,
1912. We have been advised that the British Government has prepared a
protest against the act and its enforcement in so far as it relieves from
the payment of tolls American ships engaged in the American coastwise trade
on the ground that it violates British rights tinder the Hay-Pauncefote
treaty concerning the Panama Canal. When the protest is presented, it will
be promptly considered and an effort made to reach a satisfactory
adjustment of any differences there may be between the two Governments.

WORKMEN'S COMPENSATION ACT

The promulgation of an efficient workmen's compensation act, adapted to the
particular conditions of the zone, is awaiting adequate appropriation by
Congress for the payment of claims arising thereunder. I urge that speedy
provision be made in order that we may install upon the zone a system of
settling claims for injuries in best accord with modern humane, social, and
industrial theories.

PROMOTION FOR COL. GOETHALS

As the completion of the canal grows nearer, and as the wonderful executive
work of Col. Goethals becomes more conspicuous in the eyes of the country
and of the world, it seems to me wise and proper to make provision by law
for such reward to him as may be commensurate with the service that he has
rendered to his country. I suggest that this reward take the form of an
appointment of Col. Goethals as a major general in the Army of the United
States, and that the law authorizing such appointment be accompanied with a
provision permitting his designation as Chief of Engineers upon the
retirement of the present incumbent of that office.

NAVY DEPARTMENT

The Navy of the United States is in a greater state of efficiency and is
more powerful than it has ever been before, but in the emulation which
exists between different countries in respect to the increase of naval and
military armaments this condition is not a permanent one. In view of the
many improvements and increases by foreign Governments the slightest halt
on our part in respect to new construction throws us back and reduces us
from a naval power of the first rank and places us among the nations of the
second rank. In the past 15 years the Navy has expanded rapidly and yet far
less rapidly than our country. From now on reduced expenditures in the Navy
means reduced military strength. The world's history has shown the
importance of sea power both for adequate defense and for the support of
important and definite policies.

I had the pleasure of attending this autumn a mobilization of the Atlantic
Fleet, and was glad to observe and note the preparedness of the fleet for
instant action. The review brought before the President and the Secretary
of the Navy a greater and more powerful collection of vessels than had ever
been gathered in American waters. The condition of the fleet and of the
officers and enlisted men and of the equipment of the vessels entitled
those in authority to the greatest credit.

I again commend to Congress the giving of legislative sanction to the
appointment of the naval aids to the Secretary of the Navy. These aids and
the council of aids appointed by the Secretary of the Navy to assist him in
the conduct of his department have proven to be of the highest utility.
They have furnished an executive committee of the most skilled naval
experts, who have coordinated the action of the various bureaus in the
Navy, and by their advice have enabled the Secretary to give an
administration at the same time economical and most efficient. Never before
has the United States had a Navy that compared in efficiency with its
present one, but never before have the requirements with respect to naval
warfare been higher and more exacting than now. A year ago Congress refused
to appropriate for more than one battleship. In this I think a great
mistake of policy was made, and I urgently recommend that this Congress
make up for the mistake of the last session by appropriations authorizing
the construction of three battleships, in addition to destroyers, fuel
ships, and the other auxiliary vessels as shown in the building program of
the general board. We are confronted by a condition in respect to the
navies of the world which requires us, if we would maintain our Navy as an
insurance of peace, to augment our naval force by at least two battleships
a year and by battle cruisers, gunboats, torpedo destroyers, and submarine
boats in a proper proportion. We have no desire for war. We would go as far
as any nation in the world to avoid war, but we are a world power. Our
population, our wealth, our definite policies, our responsibilities in the
Pacific and the Atlantic, our defense of the Panama Canal, together with
our enormous world trade and our missionary outposts on the frontiers of
civilization, require us to recognize our position as one of the foremost
in the family of nations, and to clothe ourselves with sufficient naval
power to give force to our reasonable demands, and to give weight to our
influence in those directions of progress that a powerful Christian nation
should advocate.

I observe that the Secretary of the Navy devotes some space to a change in
the disciplinary system in vogue in that branch of the service. I think
there is nothing quite so unsatisfactory to either the Army or the Navy as
the severe punishments necessarily inflicted by court-martial for
desertions and purely military offenses, and I am glad to hear that the
British have solved this important and difficult matter in a satisfactory
way. I commend to the consideration of Congress the details of the new
disciplinary system, and recommend that laws be passed putting the same
into force both in the Army and the Navy.

I invite the attention of Congress to that part of the report of the
Secretary of the Navy in which he recommends the formation of a naval
reserve by the organization of the ex-sailors of the Navy.

I repeat my recommendation made last year that proper provision should be
made for the rank of the commander in chief of the squadrons and fleets of
the Navy. The inconvenience attending the necessary precedence that most
foreign admirals have over our own whenever they meet in official functions
ought to be avoided. It impairs the prestige of our Navy and is a defect
that can be very easily removed.

DEPARTMENT OF JUSTICE

This department has been very active in the enforcement of the law. It has
been better organized and with a larger force than ever before in the
history of the Government. The prosecutions which have been successfully
concluded and which are now pending testify to the effectiveness of the
departmental work.

The prosecution of trusts under the Sherman antitrust law has gone on
without restraint or diminution, and decrees similar to those entered in
the Standard Oil and the Tobacco cases have been entered in other suits,
like the suits against the Powder Trust and the Bathtub Trust. I am very
strongly convinced that a steady, consistent course in this regard, with a
continuing of Supreme Court decisions upon new phases of the trust question
not already finally decided is going to offer a solution of this
much-discussed and troublesome issue in a quiet, calm, and judicial way,
without any radical legislation changing the governmental policy in regard
to combinations now denounced by the Sherman antitrust law. I have already
recommended as an aid in this matter legislation which would declare
unlawful certain well-known phases of unfair competition in interstate
trade, and I have also advocated voluntary national incorporation for the
larger industrial enterprises, with provision for a closer supervision by
the Bureau of Corporations, or a board appointed for the purpose, so as to
make more certain compliance with the antitrust law on the one hand and to
give greater security to the stockholders against possible prosecutions on
the other. I believe, however, that the orderly course of litigation in the
courts and the regular prosecution of trusts charged with the violation of
the antitrust law is producing among business men a clearer and clearer
perception of the line of distinction between business that is to be
encouraged and business that is to be condemned, and that in this quiet way
the question of trusts can be settled and competition retained as an
economic force to secure reasonableness in prices and freedom and
independence in trade.

REFORM OF COURT PROCEDURE

I am glad to bring to the attention of Congress the fact that the Supreme
Court has radically altered the equity rules governing the procedure on the
equity side of all Federal courts, and though, as these changes have not
been yet put in practice so as to enable us to state from actual results
what the reform will accomplish, they are of such a character that we can
reasonably prophesy that they will greatly reduce the time and cost of
litigation in such courts. The court has adopted many of the shorter
methods of the present English procedure, and while it may take a little
while for the profession to accustom itself to these methods, it is certain
greatly to facilitate litigation. The action of the Supreme Court has been
so drastic and so full of appreciation of the necessity for a great reform
in court procedure that I have no hesitation in following up this action
with a recommendation which I foreshadowed in my message of three years
ago, that the sections of the statute governing the procedure in the
Federal courts on the common-law side should be so amended as to give to
the Supreme Court the same right to make rules of procedure in common law
as they have, since the beginning of the court, exercised in equity. I do
not doubt that a full consideration of the subject will enable the court
while giving effect to the substantial differences in right and remedy
between the system of common law and the system of equity so to unite the
two procedures into the form of one civil action and to shorten the
procedure in such civil action as to furnish a model to all the State
courts exercising concurrent jurisdiction with the Federal courts of first
instance.

Under the statute now in force the common-law procedure in each Federal
court is made to conform to the procedure in the State in which the court
is held. In these days, when we should be making progress in court
procedure, such a conformity statute makes the Federal method too dependent
upon the action of State legislatures. I can but think it a great
opportunity for Congress to intrust to the highest tribunal in this
country, evidently imbued with a strong spirit in favor of a reform of
procedure, the power to frame a model code of procedure, which, while
preserving all that is valuable and necessary of the rights and remedies at
common law and in equity, shall lessen the burden of the poor litigant to a
minimum in the expedition and cheapness with which his cause can be fought
or defended through Federal courts to final judgment.

WORKMAN'S COMPENSATION ACT

The workman's compensation act reported by the special commission appointed
by Congress and the Executive, which passed the Senate and is now pending
in the House, the passage of which I have in previous messages urged upon
Congress, I venture again to call to its attention. The opposition to it
which developed in the Senate, but which was overcome by a majority in that
body, seemed to me to grow out rather of a misapprehension of its effect
than of opposition to its principle. I say again that I think no act can
have a better effect directly upon the relations between the employer and
employee than this act applying to railroads and common carriers of an
interstate character, and I am sure that the passage of the act would
greatly relieve the courts of the heaviest burden of litigation that they
have, and would enable them to dispatch other business with a speed never
before attained in courts of justice in this country.

THE WHITE HOUSE, December 19, 1912. To the Senate and House of
Representatives:

This is the third of a series of messages in which I have brought to the
attention of the Congress the important transactions of the Government in
each of its departments during the last year and have discussed needed
reforms.

HEADS OF DEPARTMENTS SHOULD HAVE SEATS ON THE FLOOR OF CONGRESS

I recommend the adoption of legislation which shall make it the duty of
heads of departments--the members of the President's Cabinet--at convenient
times to attend the session of the House and the Senate, which shall
provide seats for them in each House, and give them the opportunity to take
part in all discussions and to answer questions of which they have had due
notice. The rigid holding apart of the executive and the legislative
branches of this Government has not worked for the great advantage of
either. There has been much lost motion in the machinery, due to the lack
of cooperation and interchange of views face to face between the
representatives of the Executive and the Members of the two legislative
branches of the Government. It was never intended that they should be
separated in the sense of not being in constant effective touch and
relationship to each other. The legislative and the executive each performs
its own appropriate function, but these functions must be coordinated. Time
and time again debates have arisen in each House upon issues which the
information of a particular department head would have enabled him, if
present, to end at once by a simple explanation or statement. Time and time
again a forceful and earnest presentation of facts and arguments by the
representative of the Executive whose duty it is to enforce the law would
have brought about a useful reform by amendment, which in the absence of
such a statement has failed of passage. I do not think I am mistaken in
saying that the presence of the members of the Cabinet on the floor of each
House would greatly contribute to the enactment of beneficial legislation.
Nor would this in any degree deprive either the legislative or the
executive of the independence which separation of the two branches has been
intended to promote. It would only facilitate their cooperation in the
public interest.

On the other hand, I am sure that the necessity and duty imposed upon
department heads of appearing in each house and in answer to searching
questions, of rendering upon their feet an account of what they have done,
or what has been done by the administration, will spur each member of the
Cabinet to closer attention to the details of his department, to greater
familiarity with its needs, and to greater care to avoid the just criticism
which the answers brought out in questions put and discussions arising
between the Members of either House and the members of the Cabinet may
properly evoke.

Objection is made that the members of the administration having no vote
could exercise no power on the floor of the House, and could not assume
that attitude of authority and control which the English parliamentary
Government have and which enables them to meet the responsibilities the
English system thrusts upon them. I agree that in certain respects it would
be more satisfactory if members of the Cabinet could at the same time be
Members of both Houses, with voting power, but this is impossible under our
system; and while a lack of this feature may detract from the influence of
the department chiefs, it will not prevent the good results which I have
described above both in the matter of legislation and in the matter of
administration. The enactment of such a law would be quite within the power
of Congress without constitutional amendment, and it has such possibilities
of usefulness that we might well make the experiment, and if we are
disappointed the misstep can be easily retraced by a repeal of the enabling
legislation.

This is not a new proposition. In the House of Representatives, in the
Thirty-eighth Congress, the proposition was referred to a select committee
of seven Members. The committee made an extensive report, and urged the
adoption of the reform. The report showed that our history had not been
without illustration of the necessity and the examples of the practice by
pointing out that in early days Secretaries were repeatedly called to the
presence of either Rouse for consultation, advice, and information. It also
referred to remarks of Mr. justice Story in his Commentaries on the
Constitution, in which he urgently presented the wisdom of such a change.
This report is to be found in Volume I of the Reports of Committees of the
First Session of the Thirty-eighth Congress, April 6, 1864.

Again, on February 4, 1881, a select committee of the Senate recommended
the passage of a similar bill, and made a report, In which, while approving
the separation of the three branches, the executive, legislative, and
judicial, they point out as a reason for the proposed change that, although
having a separate existence, the branches are "to cooperate, each with the
other, as the different members of the human body must cooperate, with each
other in order to form the figure and perform the duties of a perfect
man."

The report concluded as follows: This system will require the selection of
the strongest men to be heads of departments and will require them to be
well equipped with the knowledge of their offices. It will also require the
strongest men to be the leaders of Congress and participate in debate. It
will bring these strong men in contact, perhaps into conflict, to advance
the public weal, and thus stimulate their abilities and their efforts, and
will thus assuredly result to the good of the country.

If it should appear by actual experience that the heads of departments in
fact have not time to perform the additional duty imposed on them by this
bill, the force in their offices should be increased or the duties
devolving on them personally should be diminished. An undersecretary should
be appointed to whom could be confided that routine of administration which
requires only order and accuracy. The principal officers could then confine
their attention to those duties which require wise discretion and
intellectual activity. Thus they would have abundance of time for their
duties under this bill. Indeed, your committee believes that the public
interest would be subserved if the Secretaries were relieved of the
harassing cares of distributing clerkships and closely supervising the mere
machinery of the departments. Your committee believes that the adoption of
this bill and the effective execution of its provisions will be the first
step toward a sound civil-service reform which will secure a larger wisdom
in the adoption of policies and a better system in their execution.(Signed)
GEO. H. PENDLETON. W. B. ALLISON. D. W. VOORHEES. J. G. BLAINE. M. C.
BUTLER. JOHN J. INGALLS. O. H. PLATT. J. T. FARLEY. It would be difficult
to mention the names of higher authority in the practical knowledge of our
Government than those which are appended to this report.

POSTAL SAVINGS BANK SYSTEM

The Postal Savings Bank System has been extended so that it now includes
4,004 fourth-class post offices', as well as 645 branch offices and
stations in the larger cities. There are now 12,812 depositories at which
patrons of the system may open accounts. The number of depositors is
300,000 and the amount of their deposits is approximately $28,000,000, not
including $1,314,140 which has been with drawn by depositors for the
purpose of buying postal savings bonds. Experience demonstrates the value
of dispensing with the pass-book and introducing in its place a certificate
of deposit. The gross income of the postal savings system for the fiscal
year ending June 30, 1913, will amount to $700,000 and the interest payable
to depositors to $300,000. The cost of supplies, equipment, and salaries is
$700,000. It thus appears that the system lacks $300,000 a year of paying
interest and expenses. It is estimated, however, that when the deposits
have reached the sum Of $50,000,000, which at the present rate they soon
will do, the system will be self-sustaining. By law the postal savings
funds deposited at each post office are required to be redeposited in local
banks. State and national banks to the number of 7,357 have qualified as
depositories for these funds. Such deposits are secured by bonds
aggregating $54,000,000. Of this amount, $37,000,000 represent municipal
bonds.

PARCEL POST

In several messages I have favored and recommended the adoption of a system
of parcel post. In the postal appropriation act of last year a general
system was provided and its installation was directed by the 1st of
January. This has entailed upon the Post Office Department a great deal of
very heavy labor, but the Postmaster General informs me that on the date
selected, to wit, the 1st of January, near at hand, the department will be
in readiness to meet successfully the requirements of the public.

CLASSIFICATION OF POSTMASTERS

A trial, during the past three years, of the system of classifying
fourth-class postmasters in that part of the country lying between the
Mississippi River on the west, Canada on the north, the Atlantic Ocean on
the east, and Mason and Dixon's line on the south has been sufficiently
satisfactory to justify the postal authorities in recommending the
extension of the order to include all the fourth-class postmasters in the
country. In September, 1912, upon the suggestion of the Postmaster General,
I directed him to prepare an order which should put the system in effect,
except in Alaska, Guam, Hawaii, Porto Rico, and Samoa. Under date of
October 15 I issued such an order which affected 36,000 postmasters. By the
order the post offices were divided into groups A and B. Group A includes
all postmasters whose compensation is $500 or more, and group B those whose
compensation is less than that sum. Different methods are pursued in the
selection of the postmasters for group A and group, B. Criticism has been
made of this order on the ground that the motive for it was political.
Nothing could be further from the truth. The order was made before the
election and in the interest of efficient public service. I have several
times requested Congress to give me authority to put first-, second-, and
third-class postmasters, and all other local officers, including
internal-revenue officers, customs officers, United States marshals, and
the local agents of the other departments under the classification of the
civil-service law by taking away the necessity for confirming such
appointments by the Senate. I deeply regret the failure of Congress to
follow these recommendations. The change would have taken out of politics
practically every local officer and would have entirely cured the evils
growing out of what under the present law must always remain a remnant of
the spoils system.

COMPENSATION TO RAILWAYS FOR CARRYING MAILS

It is expected that the establishment of a parcel post on January 1st will
largely increase the amount of mail matter to be transported by the
railways, and Congress should be prompt to provide a way by which they may
receive the additional compensation to which they will be entitled. The
Postmaster General urges that the department's plan for a complete
readjustment of the system of paying the railways for carrying the mails be
adopted, substituting space for weight as the principal factor in fixing
compensation. Under this plan it will be possible to determine without
delay what additional payment should be made on account of the parcel post.
The Postmaster General's recommendation is based on the results of a
far-reaching investigation begun early in the administration with the
object of determining what it costs the railways to carry the mails. The
statistics obtained during the course of the inquiry show that while many
of the railways, and particularly the large systems, were making profits
from mail transportations, certain of the lines were actually carrying the
mails at a loss. As a result of the investigation the department, after
giving the subject careful consideration, decided to urge the abandonment
of the present plan of fixing compensation on the basis of the weight of
the mails carried, a plan that has proved to be exceedingly expensive and
in other respects unsatisfactory. Under the method proposed the railway
companies will annually submit to the department reports showing what it
costs them to carry the mails, and this cost will be apportioned on the
basis of the car space engaged, payment to be allowed at the rate thus
determined in amounts that will cover the cost and a reasonable profit. If
a railway is not satisfied with the manner in which the department
apportions the cost in fixing compensation, it is to have the right, tinder
the new plan, of appealing to the Interstate Commerce Commission. This
feature of the proposed law would seem to insure a fair treatment of the
railways. It is hoped that Congress will give the matter immediate
attention and that the method of compensation recommended by the department
or some other suitable plan will be promptly authorized.

DEPARTMENT OF THE INTERIOR

The Interior Department, in the problems of administration included within
its jurisdiction, presents more difficult questions than any other. This
has been due perhaps to temporary causes of a political character, but more
especially to the inherent difficulty in the performance of some of the
functions which are assigned to it. Its chief duty is the guardianship of
the public domain and the disposition of that domain to private ownership
under homestead, mining, and other laws, by which patents from the
Government to the individual are authorized on certain conditions. During
the last decade the public seemed to become suddenly aware that a very
large part of its domain had passed from its control into private
ownership, under laws not well adapted to modern conditions, and also that
in the doing of this the provisions of existing law and regulations adopted
in accordance with law had not been strictly observed, and that in the
transfer of title much fraud had intervened, to the pecuniary benefit of
dishonest persons. There arose thereupon a demand for conservation of the
public domain, its protection against fraudulent diminution, and the
preservation of that part of it from private acquisition which it seemed
necessary to keep for future public use. The movement, excellent in the
intention which prompted it, and useful in its results, has nevertheless
had some bad effects, which the western country has recently been feeling
and in respect of which there is danger of a reaction toward older abuses
unless we can attain the golden mean, which consists in the prevention of
the mere exploitation of the public domain for private purposes while at
the same, time facilitating its development for the benefit of the local
public.

The land laws need complete revision to secure proper conservation on the
one hand of land that ought to be kept in public use and, on the other
hand, prompt disposition of those lands which ought to be disposed in
private ownership or turned over to private use by properly guarded leases.
In addition to this there are not enough officials in our Land Department
with legal knowledge sufficient promptly to make the decisions which are
called for. The whole land-laws system should be reorganized, and not until
it is reorganized, will decisions be made as promptly as they ought, or
will men who have earned title to public land under the statute receive
their patents within a reasonably short period. The present administration
has done what it could in this regard, but the necessity for reform and
change by a revision of the laws and an increase and reorganization of the
force remains, and I submit to Congress the wisdom of a full examination of
this subject, in order that a very large and important part of our people
in the West may be relieved from a just cause of irritation.

I invite your attention to the discussion by the Secretary of the Interior
of the need for legislation with respect to mining claims, leases of coal
lands in this country and in Alaska, and for similar disposition of oil,
phosphate, and potash lands, and also to his discussion of the proper use
to be made of water-power sites held by the Government. Many of these lands
are now being withheld from use by the public under the general withdrawal
act which was passed by the last Congress. That act was not for the purpose
of disposing of the question, but it was for the purpose of preserving the
lands until the question could be solved. I earnestly urge that the matter
is of the highest importance to our western fellow citizens and ought to
command the immediate attention of the legislative branch of the
Government.

Another function which the Interior Department has to perform is that of
the guardianship of Indians. In spite of everything which has been said in
criticism of the policy of our Government toward the Indians, the amount of
wealth which is now held by it for these wards per capita shows that the
Government has been generous; but the management of so large an estate,
with the great variety of circumstances that surround each tribe and each
case, calls for the exercise of the highest business discretion, and the
machinery provided in the Indian Bureau for the discharge of this function
is entirely inadequate. The position of Indian commissioner demands the
exercise of business ability of the first order, and it is difficult to
secure such talent for the salary provided.

The condition of health of the Indian and the prevalence in the tribes of
curable diseases has been exploited recently in the press. In a message to
Congress at its last session I brought this subject to its attention and
invited a special appropriation, in order that our facilities for
overcoming diseases among the Indians might be properly increased, but no
action was then taken by Congress on the subject, nor has such
appropriation been made since.

The commission appointed by authority of the Congress to report on proper
method of securing railroad development in Alaska is formulating its
report, and I expect to have an opportunity before the end of this session
to submit its recommendations.

DEPARTMENT OF AGRICULTURE

The far-reaching utility of the educational system carried on by the
Department of Agriculture for the benefit of the farmers of our country
calls for no elaboration. Each year there is a growth in the variety of
facts which it brings out for the benefit of the farmer, and each year
confirms the wisdom of the expenditure of the appropriations made for that
department.

PURE-FOOD LAW

The Department of Agriculture is charged with the execution of the
pure-food law. The passage of this encountered much opposition from
manufacturers and others who feared the effect upon their business of the
enforcement of its provisions. The opposition aroused the just indignation
of the public, and led to an intense sympathy with the severe and rigid
enforcement of the provisions of the new law. It had to deal in many
instances with the question whether or not products of large business
enterprises, in the form of food preparations, were deleterious to the
public health; and while in a great majority of instances this issue was
easily determinable, there were not a few cases in which it was hard to
draw the line between a useful and a harmful food preparation. In cases
like this when a decision involved the destruction of great business
enterprises representing the investment of large capital and the
expenditure of great energy and ability, the danger of serious injustice
was very considerable in the enforcement of a new law under the spur of
great public indignation. The public officials charged with executing the
law might do injustice in heated controversy through unconscious pride of
opinion and obstinacy of conclusion. For this reason President Roosevelt
felt justified in creating a board of experts, known as the Remsen Board,
to whom in cases of much importance an appeal might be taken and a review
had of a decision of the Bureau of Chemistry in the Agricultural
Department. I heartily agree that it was wise to create this board in order
that injustice might not be done. The questions which arise are not
generally those involving palpable injury to health, but they are upon the
narrow and doubtful line in respect of which it is better to be in some
error not dangerous than to be radically destructive. I think that the time
has come for Congress to recognize the necessity for some such tribunal of
appeal and to make specific statutory provision for it. While we are
struggling to suppress an evil of great proportions like that of impure
food, we must provide machinery in the law itself to prevent its becoming
an instrument of oppression, and we ought to enable those whose business is
threatened with annihilation to have some tribunal and some form of appeal
in which they have a complete day in court.

AGRICULTURAL CREDITS

I referred in my first message to the question of improving the system of
agricultural credits. The Secretary of Agriculture has made an
investigation into the matter of credits in this country, and I commend a
consideration of the information which through his agents he has been able
to collect. It does not in any way minimize the importance of the proposal,
but it gives more accurate information upon some of the phases of the
question than we have heretofore had.

DEPARTMENT OF COMMERCE AND LABOR

I commend to Congress an examination of the report of the Secretary of
Commerce and Labor, and especially that part in which he discusses the
office of the Bureau of Corporations, the value to commerce of a proposed
trade commission, and the steps which he has taken to secure the
organization of a national chamber of commerce. I heartily commend his view
that the plan of a trade commission which looks to the fixing of prices is
altogether impractical and ought not for a moment to be considered as a
possible solution of the trust question.

The trust question in the enforcement of the Sherman antitrust law is
gradually solving itself, is maintaining the principle and restoring the
practice of competition, and if the law is quietly but firmly enforced,
business will adjust itself to the statutory requirements, and the unrest
in commercial circles provoked by the trust discussion will disappear.

PANAMA-PACIFIC INTERNATIONAL EXPOSITION

In conformity with a joint resolution of Congress, an Executive
proclamation was issued last February, inviting the nations of the world to
participate in the Panama-Pacific International Exposition to be held at
San Francisco to celebrate the construction of the Panama, Canal. A
sympathetic response was immediately forthcoming, and several nations have
already selected the sites for their buildings. In furtherance of my
invitation, a special commission visited European countries during the past
summer, and received assurance of hearty cooperation in the task of
bringing together a universal industrial, military, and naval display on an
unprecedented scale. It is evident that the exposition will be an accurate
mirror of the world's activities as they appear 400 years after the date of
the discovery of the Pacific Ocean.

It is the duty of the United States to make the nations welcome at San
Francisco and to facilitate such acquaintance between them and ourselves as
will promote the expansion of commerce and familiarize the world with the
new trade route through the Panama Canal. The action of the State
governments and individuals assures a comprehensive exhibit of the
resources of this country and of the progress of the people. This
participation by State and individuals should be supplemented by an
adequate showing of the varied and unique activities of the National
Government. The United States can not with good grace invite foreign
governments to erect buildings and make expensive exhibits while itself
refusing to participate. Nor would it be wise to forego the opportunity to
join with other nations in the inspiring interchange of ideas tending to
promote intercourse, friendship, and commerce. It is the duty of the
Government to foster and build up commerce through the canal, just as it
was the duty of the Government to construct it.

I earnestly recommend the appropriation at this session of such a sum as
will enable the United States to construct a suitable building, install a
governmental exhibit, and otherwise participate in the Panama-Pacific
International Exposition in a manner commensurate with the dignity of a
nation whose guests are to be the people of the world. I recommend also
such legislation as will facilitate the entry of material intended for
exhibition and protect foreign exhibitors against infringement of patents
and the unauthorized copying of patterns and designs. All aliens sent to
San Francisco to construct and care for foreign buildings and exhibits
should be admitted without restraint or embarrassment.

THE DISTRICT OF COLUMBIA AND THE CITY OF WASHINGTON

The city of Washington is a beautiful city, with a population of 352,936,
of whom 98,667 are colored. The annual municipal budget is about
$14,000,000. The presence of the National Capital and other governmental
structures constitutes the chief beauty and interest of the city. The
public grounds are extensive, and the opportunities for improving the city
and making it still more attractive are very great. Under a plan adopted
some years ago, one half the cost of running the city is paid by taxation
upon the property, real and personal, of the citizens and residents, and
the other half is borne by the General Government. The city is expanding at
a remarkable rate, and this can only be accounted for by the coming here
from other parts of the country of well-to-do people who, having finished
their business careers elsewhere, build and make this their permanent place
of residence.

On the whole, the city as a municipality is very well governed. It is well
lighted, the water supply is good, the streets are well paved, the police
force is well disciplined, crime is not flagrant, and while it has purlieus
and centers of vice, like other large cities, they are not exploited, they
do not exercise any influence or control in the government of the city, and
they are suppressed in as far as it has been found practicable. Municipal
graft is inconsiderable. There are interior courts in the city that are
noisome and centers of disease and the refuge of criminals, but Congress
has begun to clean these out, and progress has been made in the case of the
most notorious of these, which is known as "Willow Tree Alley." This
movement should continue.

The mortality for the past year was at the rate Of 17.80 per 1,000 of both
races; among the whites it was 14.61 per thousand, and among the blacks
26.12 per thousand. These are the lowest mortality rates ever recorded in
the District.

One of the most crying needs in the government of the District is a
tribunal or public authority for the purpose of supervising the
corporations engaged in the operation of public utilities. Such a bill is
pending in Congress and ought to pass. Washington should show itself under
the direction of Congress to be a city with a model form of government, but
as long as such authority over public utilities is withheld from the
municipal government, it must always be defective.

Without undue criticism of the present street railway accommodations, it
can be truly said that under the spur of a public utilities commission they
might be substantially improved.

While the school system of Washington perhaps might be bettered in the
economy of its management and the distribution of its buildings, its
usefulness has nevertheless greatly increased in recent years, and it now
offers excellent facilities for primary and secondary education.

From time to time there is considerable agitation in Washington in favor of
granting the citizens of the city the franchise and constituting an
elective government. I am strongly opposed to this change. The history of
Washington discloses a number of experiments of this kind, which have
always been abandoned as unsatisfactory. The truth is this is a city
governed by a popular body, to wit, the Congress of the United States,
selected from the people of the United States, who own Washington. The
people who come here to live do so with the knowledge of the origin of the
city and the restrictions, and therefore voluntarily give up the privilege
of living in a municipality governed by popular vote. Washington is so
unique in its origin and in its use for housing and localizing the
sovereignty of the Nation that the people who live here must regard its
peculiar character and must be content to subject themselves to the control
of a body selected by all the people of the Nation. I agree that there are
certain inconveniences growing out of the government of a city by a
national legislature like Congress, and it would perhaps be possible to
lessen these by the delegation by Congress to the District Commissioners of
greater legislative power for the enactment of local laws than they now
possess, especially those of a police character.

Every loyal American has a personal pride in the beauty of Washington and
in its development and growth. There is no one with a proper appreciation
of our Capital City who would favor a niggardly policy in respect to
expenditures from the National Treasury to add to the attractiveness of
this city, which belongs to every citizen of the entire country, and which
no citizen visits without a sense of pride of ownership. We have had
restored by a Commission of Fine Arts, at the instance of a committee of
the Senate, the original plan of the French engineer L'Enfant for the city
of Washington, and we know with great certainty the course which the
improvement of Washington should take. Why should there be delay in making
this improvement in so far as it involves the extension of the parking
system and the construction of greatly needed public buildings?
Appropriate buildings for the State Department, the Department of justice,
and the Department of Commerce and Labor have been projected, plans have
been approved, and nothing is wanting but the appropriations for the
beginning and completion of the structures. A hall of archives is also
badly needed, but nothing has been done toward its construction, although
the land for it has long been bought and paid for. Plans have been made for
the union of Potomac Park with the valley of Rock Creek and Rock Creek
Park, and the necessity for the connection between the Soldiers' Home and
Rock Creek Park calls for no comment. I ask again why there should be delay
in carrying out these plans We have the money in the Treasury, the plans
are national in their scope, and the improvement should be treated as a
national project. The plan will find a hearty approval throughout the
country. I am quite sure, from the information which I have, that, at
comparatively small expense, from that part of the District of Columbia
which was retroceded to Virginia, the portion including the Arlington
estate, Fort Myer, and the palisades of the Potomac can be acquired by
purchase and the jurisdiction of the State of Virginia over this land ceded
to the Nation. This ought to be done.

The construction of the Lincoln Memorial and of a memorial bridge from the
base of the Lincoln Monument to Arlington would be an appropriate and
symbolic expression of the union of the North and the South at the Capital
of the Nation. I urge upon Congress the appointment of a commission to
undertake these national improvements, and to submit a plan for their
execution; and when the plan has been submitted and approved, and the work
carried out, Washington will really become what it ought to be--the most
beautiful city in the world.