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 AddressWilliam H. TaftDecember 7, 1909

The relations of the United States with all foreign governments havecontinued upon the normal basis of amity and good understanding, and arevery generally satisfactory. EUROPE. 

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

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

The American rights under the fisheries article of the Treaty of 1818 havebeen a cause of difference between the United States and Great Britain fornearly seventy years. The interests involved are of great importance to theAmerican fishing industry, and the final settlement of the controversy willremove a source of constant irritation and complaint. This is the firstcase involving such great international questions which has been submittedto the Permanent Court of Arbitration at The Hague. 

The treaty between the United States and Great Britain concerning theCanadian International boundary, concluded April 11, 1908, authorizes theappointment of two commissioners to define and mark accurately theinternational boundary line between the United States and the Dominion ofCanada in the waters of the Passamaquoddy Bay, and provides for theexchange of briefs within the period of six months. The briefs were dulypresented within the prescribed period, but as the commissioners failed toagree within six months after the exchange of the printed statements, asrequired by the treaty, it has now become necessary to resort to thearbitration provided for in the article. 

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

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

The Convention providing for the settlement of international differencesbetween the United States and Canada, including the apportionment betweenthe two countries of certain of the boundary waters and the appointment ofcommissioners to adjust certain other questions, signed on the 11th day ofJanuary, 1909, and to the ratification of which the Senate gave its adviceand consent on March 3, 1909, has not yet been ratified on the part ofGreat Britain. 

Commissioners have been appointed on the part of the United States to actjointly with Commissioners on the part of Canada in examining into thequestion of obstructions in the St. John River between Maine and NewBrunswick, and to make recommendations for the regulation of the usesthereof, and are now engaged in this work. 

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

The Second Peace Conference recently held at The Hague adopted a conventionfor the establishment of an International Prize Court upon the jointproposal of delegations of the United States, France, Germany and GreatBritain. The law to be observed by the Tribunal in the decision of prizecases was, however, left in an uncertain and therefore unsatisfactorystate. Article 7 of the Convention provided that the Court was to begoverned by the provisions of treaties existing between the belligerents, but that "in the absence of such provisions, the court shall apply therules of international law. If no generally recognized rule exists, thecourt shall give judgment in accordance with the general principles ofjustice and equity. " As, however, many questions in international maritimelaw are understood differently and therefore interpreted differently invarious countries, it was deemed advisable not to intrust legislativepowers to the proposed court, but to determine the rules of law properlyapplicable in a Conference of the representative maritime nations. Pursuantto an invitation of Great Britain a conference was held at London fromDecember 2, 1908, to February 26, 1909, in which the following Powersparticipated: the United States, Austria-Hungary, France, Germany, GreatBritain, Italy, Japan, the Netherlands, Russia and Spain. The conferenceresulted in the Declaration of London, unanimously agreed to and signed bythe participating Powers, concerning among other matters, the highlyimportant subjects of blockade, contraband, the destruction of neutralprizes, and continuous voyages. The declaration of London is an eminentlysatisfactory codification of the international maritime law, and it ishoped that its reasonableness and fairness will secure its generaladoption, as well as remove one of the difficulties standing in the way ofthe establishment of an International Prize Court. 

Under the authority given in the sundry civil appropriation act, approvedMarch 4, 1909, the United States was represented at the InternationalConference on Maritime Law at Brussels. The Conference met on the 28th ofSeptember last and resulted in the signature ad referendum of a conventionfor the unification of certain regulations with regard to maritimeassistance and salvage and a convention for the unification of certainrules with regard to collisions at sea. Two new projects of conventionswhich 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 beensubmitted 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 uniformlegislation concerning letters of exchange, which was called by theGovernment of the Netherlands to meet at The Hague in September, 1909, hasbeen postponed to meet at that capital in June, 1910. The United Stateswill be appropriately represented in this Conference under the provisiontherefor already made by Congress. 

The cordial invitation of Belgium to be represented by a fitting display ofAmerican progress in the useful arts and inventions at the World's Fair tobe held at Brussels in 1910 remains to be acted upon by the Congress. Mindful of the advantages to accrue to our artisans and producers incompetition with their Continental rivals, I renew the recommendationheretofore made that provision be made for acceptance of the invitation andadequate representation in the Exposition. The question arising out of theBelgian annexation of the Independent State of the Congo, which has so longand earnestly preoccupied the attention of this Government and enlisted thesympathy 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 theuncivilized regions of Africa and urging the extension of the benefits ofcivilization, education, and fruitful open commerce to that vast domain, and is a party to treaty engagements of all the interested powers designedto carry out that great duty to humanity. The way to better the originaland adventitious conditions, so burdensome to the natives and sodestructive to their development, has been pointed out, by observation andexperience, not alone of American representatives, but by cumulativeevidence from all quarters and by the investigations of Belgian Agents. Theannounced programmes of reforms, striking at many of the evils known toexist, are an augury of better things. The attitude of the United States isone of benevolent encouragement, coupled with a hopeful trust that the goodwork, responsibly undertaken and zealously perfected to the accomplishmentof the results so ardently desired, will soon justify the wisdom thatinspires them and satisfy the demands of humane sentiment throughout theworld. 

A convention between the United States and Germany, under which thenonworking provisions of the German patent law are made inapplicable to thepatents of American citizens, was concluded on February 23, 1909, and isnow in force. Negotiations for similar conventions looking to the placingof American inventors on the same footing as nationals have recently beeninitiated with other European governments whose laws require the localworking of foreign patents. 

Under an appropriation made at the last session of the Congress, acommission was sent on American cruisers to Monrovia to investigate theinterests of the United States and its citizens in Liberia. Upon itsarrival at Monrovia the commission was enthusiastically received, andduring its stay in Liberia was everywhere met with the heartiestexpressions of good will for the American Government and people and thehope was repeatedly expressed on all sides that this Government might seeits way clear to do something to relieve the critical position of theRepublic arising in a measure from external as well as internal andfinancial embarrassments. The Liberian Government afforded every facilityto the Commission for ascertaining the true state of affairs. TheCommission also had conferences with representative citizens, interestedforeigners and the representatives of foreign governments in Monrovia. Visits were made to various parts of the Republic and to the neighboringBritish colony of Sierra Leone, where the Commission was received by andconferred with the Governor. 

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

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

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

This invitation was conveyed under the reservation that the question ofaltering the status of the islands as countries belonging to no particularState, 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 Norwaywere Belgium, Denmark, France, Germany, Great Britain, Russia, Sweden andthe Netherlands. 

The Department of State, in view of proofs filed with it in 1906, showingthe American possession, occupation, and working of certain coal-bearinglands in Spitzbergen, accepted the invitation under the reservation abovestated, and under the further reservation that all interests in thoseislands already vested should be protected and that there should beequality of opportunity for the future. It was further pointed out thatmembership in the Conference on the part of the United States was qualifiedby the consideration that this Government would not become a signatory toany conventional arrangement concluded by the European members of theConference which would imply contributory participation by the UnitedStates in any obligation or responsibility for the enforcement of anyscheme of administration which might be devised by the Conference for theislands. 

THE NEAR EAST. 

His Majesty Mehmed V, Sultan of Turkey, recently sent to this country aspecial embassy to announce his accession. The quick transition of theGovernment of the Ottoman Empire from one of retrograde tendencies to aconstitutional government with a Parliament and with progressive modernpolicies of reform and public improvement is one of the important phenomenaof our times. Constitutional government seems also to have made furtheradvance in Persia. These events have turned the eyes of the world upon theNear East. In that quarter the prestige of the United States has spreadwidely through the peaceful influence of American schools, universities andmissionaries. There is every reason why we should obtain a greater share ofthe commerce of the Near East since the conditions are more favorable nowthan ever before. 

LATIN AMERICA. 

One of the happiest events in recent Pan-American diplomacy was thepacific, independent settlement by the Governments of Bolivia and Peru of aboundary difference between them, which for some weeks threatened to causewar and even to entrain embitterments affecting other republics lessdirectly concerned. From various quarters, directly or indirectlyconcerned, the intermediation of the United States was sought to assist ina solution of the controversy. Desiring at all times to abstain from anyundue mingling in the affairs of sister republics and having faith in theability of the Governments of Peru and Bolivia themselves to settle theirdifferences in a manner satisfactory to themselves which, viewed withmagnanimity, would assuage all embitterment, this Government steadilyabstained from being drawn into the controversy and was much gratified tofind its confidence justified by events. 

On the 9th of July next there will open at Buenos Aires the FourthPan-American Conference. This conference will have a special meaning to thehearts of all Americans, because around its date are clustered theanniversaries of the independence of so many of the American republics. Itis not necessary for me to remind the Congress of the political, social andcommercial importance of these gatherings. You are asked to make liberalappropriation for our participation. If this be granted, it is my purposeto appoint a distinguished and representative delegation, qualifiedfittingly to represent this country and to deal with the problems ofintercontinental interest which will there be discussed. 

The Argentine Republic will also hold from May to November, 1910, at BuenosAires, a great International Agricultural Exhibition in which the UnitedStates has been invited to participate. Considering the rapid growth of thetrade of the United States with the Argentine Republic and the cordialrelations existing between the two nations, together with the fact that itprovides an opportunity to show deference to a sister republic on theoccasion of the celebration of its national independence, the properDepartments of this Government are taking steps to apprise the interestsconcerned of the opportunity afforded by this Exhibition, in whichappropriate participation by this country is so desirable. The designationof an official representative is also receiving consideration. 

To-day, more than ever before, American capital is seeking investment inforeign countries, and American products are more and more generallyseeking foreign markets. As a consequence, in all countries there areAmerican citizens and American interests to be protected, on occasion, bytheir Government. These movements of men, of capital, and of commoditiesbring peoples and governments closer together and so form bonds of peaceand mutual dependency, as they must also naturally sometimes make passingpoints of friction. The resultant situation inevitably imposes upon thisGovernment vastly increased responsibilities. This Administration, throughthe Department of State and the foreign service, is lending all propersupport to legitimate and beneficial American enterprises in foreigncountries, the degree of such support being measured by the nationaladvantages to be expected. A citizen himself can not by contract orotherwise divest himself of the right, nor can this Government escape theobligation, of his protection in his personal and property rights whenthese are unjustly infringed in a foreign country. To avoid ceaselessvexations it is proper that in considering whether American enterpriseshould be encouraged or supported in a particular country, the Governmentshould give full weight not only to the national, as opposed to theindividual benefits to accrue, but also to the fact whether or not theGovernment of the country in question is in its administration and in itsdiplomacy faithful to the principles of moderation, equity and justice uponwhich alone depend international credit, in diplomacy as well as infinance. 

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

Beside the fundamental doctrines of our Pan-American policy there havegrown up a realization of political interests, community of institutionsand ideals, and a flourishing commerce. All these bonds will be greatlystrengthened as time goes on and increased facilities, such as the greatbank soon to be established in Latin America, supply the means for buildingup the colossal intercontinental commerce of the future. 

My meeting with President Diaz and the greeting exchanged on both Americanand Mexican soil served, I hope, to signalize the close and cordialrelations which so well bind together this Republic and the great Republicimmediately to the south, between which there is so vast a network ofmaterial interests. 

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

The sincere desire of the Government of Panama to do away with a situationwhere such an accident could occur is manifest in the recent request incompliance with which this Government has lent the services of an officerof the Army to be employed by the Government of Panama as Instructor ofPolice. 

The sanitary improvements and public works undertaken in Cuba prior to thepresent administration of that Government, in the success of which theUnited States is interested under the treaty, are reported to be makinggood progress and since the Congress provided for the continuance of thereciprocal commercial arrangement between Cuba and the United Statesassurance has been received that no negotiations injuriously affecting thesituation will be undertaken without consultation. The collection of thecustoms of the Dominican Republic through the general receiver of customsappointed by the President of the United States in accordance with theconvention of February 8, 1907, has proceeded in an uneventful andsatisfactory manner. The customs receipts have decreased owing to disturbedpolitical and economic conditions and to a very natural curtailment ofimports in view of the anticipated revision of the Dominican tariffschedule. The payments to the fiscal agency fund for the service of thebonded debt of the Republic, as provided by the convention, have beenregularly and promptly made, and satisfactory progress has been made incarrying out the provisions of the convention looking towards thecompletion of the adjustment of the debt and the acquirement by theDominican Government of certain concessions and monopolies which have beena burden to the commerce of the country. In short, the receivership hasdemonstrated its ability, even under unfavorable economic and politicalconditions, to do the work for which it was intended. 

This Government was obliged to intervene diplomatically to bring aboutarbitration or settlement of the claim of the Emery Company againstNicaragua, which it had long before been agreed should be arbitrated. Asettlement of this troublesome case was reached by the signature of aprotocol on September 18, 1909. 

Many years ago diplomatic intervention became necessary to the protectionof the interests in the American claim of Alsop and Company against theGovernment of Chile. The Government of Chile had frequently admittedobligation in the case and had promised this Government to settle. Therehad been two abortive attempts to do so through arbitral commissions, whichfailed through lack of jurisdiction. Now, happily, as the result of therecent diplomatic negotiations, the Governments of the United States and ofChile, actuated by the sincere desire to free from any strain those cordialand friendly relations upon which both set such store, have agreed by aprotocol to submit the controversy to definitive settlement by HisBritannic Majesty, Edward VII. 

Since the Washington Conventions of 1907 were communicated to theGovernment of the United States as a consulting and advising party, thisGovernment has been almost continuously called upon by one or another, andin turn by all the five Central American Republics, to exert itself for themaintenance of the Conventions. Nearly every complaint has been against theZelaya Government of Nicaragua, which has kept Central America in constanttension or turmoil. The responses made to the representations of CentralAmerican Republics, as due from the United States on account of itsrelation to the Washington Conventions, have been at all times conservativeand have avoided, so far as possible, any semblance of interference, although it is very apparent that the considerations of geographicproximity to the Canal Zone and of the very substantial American interestsin Central America give to the United States a special position in the zoneof these Republics and the Caribbean Sea. 

I need not rehearse here the patient efforts of this Government to promotepeace and welfare among these Republics, efforts which are fullyappreciated by the majority of them who are loyal to their true interests. It would be no less unnecessary to rehearse here the sad tale ofunspeakable barbarities and oppression alleged to have been committed bythe Zelaya Government. Recently two Americans were put to death by order ofPresident Zelaya himself. They were reported to have been regularlycommissioned officers in the organized forces of a revolution which hadcontinued many weeks and was in control of about half of the Republic, andas 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 terminateddiplomatic relations with the Zelaya Government, for reasons made public ina communication to the former Nicaraguan charge d'affaires, and isintending to take such future steps as may be found most consistent withits dignity, its duty to American interests, and its moral obligations toCentral America and to civilization. It may later be necessary for me tobring this subject to the attention of the Congress in a special message. 

The International Bureau of American Republics has carried on an importantand increasing work during the last year. In the exercise of its peculiarfunctions as an international agency, maintained by all the AmericanRepublics for the development of Pan-American commerce and friendship, ithas accomplished a great practical good which could be done in the same wayby no individual department or bureau of one government, and is thereforedeserving of your liberal support. The fact that it is about to enter a newbuilding, erected through the munificence of an American philanthropist andthe contributions of all the American nations, where both its efficiency ofadministration 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 ofsupporting the principle of equality of opportunity and scrupulous respectfor the integrity of the Chinese Empire, to which policy are pledged theinterested Powers of both East and West. 

By the Treaty of 1903 China has undertaken the abolition of likin with amoderate and proportionate raising of the customs tariff along withcurrency reform. These reforms being of manifest advantage to foreigncommerce as well as to the interests of China, this Government isendeavoring to facilitate these measures and the needful acquiescence ofthe treaty Powers. When it appeared that Chinese likin revenues were to behypothecated to foreign bankers in connection with a great railway project, it was obvious that the Governments whose nationals held this loan wouldhave a certain direct interest in the question of the carrying out by Chinaof the reforms in question. Because this railroad loan represented apractical and real application of the open door policy through cooperationwith China by interested Powers as well as because of its relations to thereforms referred to above, the Administration deemed American participationto be of great national interest. Happily, when it was as a matter of broadpolicy urgent that this opportunity should not be lost, the indispensableinstrumentality presented itself when a group of American bankers, ofinternational reputation and great resources, agreed at once to share inthe loan upon precisely such terms as this Government should approve. Thechief of those terms was that American railway material should be upon anexact equality with that of the other nationals joining in the loan in theplacing of orders for this whole railroad system. After months ofnegotiation the equal participation of Americans seems at last assured. Itis gratifying that Americans will thus take their share in this extensionof these great highways of trade, and to believe that such activities willgive a real impetus to our commerce and will prove a practical corollary toour historic policy in the Far East. 

The Imperial Chinese Government in pursuance of its decision to devotefunds from the portion of the indemnity remitted by the United States tothe sending of students to this country has already completed arrangementsfor carrying out this purpose, and a considerable body of students havearrived to take up their work in our schools and universities. No one candoubt the happy effect that the associations formed by these representativeyoung men will have when they return to take up their work in theprogressive development of their country. 

The results of the Opium Conference held at Shanghai last spring at theinvitation of the United States have been laid before the Government. Thereport shows that China is making remarkable progress and admirable effortstoward the eradication of the opium evil and that the Governments concernedhave not allowed their commercial interests to interfere with a helpfulcooperation in this reform. Collateral investigations of the opium questionin this country lead me to recommend that the manufacture, sale and use ofopium and its derivatives in the United States should be so far as possiblemore rigorously controlled by legislation. 

In one of the Chinese-Japanese Conventions of September 4 of this yearthere was a provision which caused considerable public apprehension in thatupon its face it was believed in some quarters to seek to establish amonopoly of mining privileges along the South Manchurian and Antung-MukdenRailroads, and thus to exclude Americans from a wide field of enterprise, to take part in which they were by treaty with China entitled. After athorough examination of the Conventions and of the several contextualdocuments, the Secretary of State reached the conclusion that no suchmonopoly was intended or accomplished. However, in view of the widespreaddiscussion of this question, to confirm the view it had reached, thisGovernment made inquiry of the Imperial Chinese and Japanese Governmentsand received from each official assurance that the provision had no purposeinconsistent with the policy of equality of opportunity to which thesignatories, in common with the United States, are pledged. 

Our traditional relations with the Japanese Empire continue cordial asusual. As the representative of Japan, His Imperial Highness Prince Kunivisited the Hudson-Fulton Celebration. The recent visit of a delegation ofprominent business men as guests of the chambers of commerce of the Pacificslope, whose representatives had been so agreeably received in Japan, willdoubtless contribute to the growing trade across the Pacific, as well as tothat mutual understanding which leads to mutual appreciation. Thearrangement of 1908 for a cooperative control of the coming of laborers tothe United States has proved to work satisfactorily. The matter of arevision of the existing treaty between the United States and Japan whichis terminable in 1912 is already receiving the study of both countries. 

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

THE DEPARTMENT OF STATE. 

I earnestly recommend to the favorable action of the Congress the estimatessubmitted by the Department of State and most especially the legislationsuggested in the Secretary of State's letter of this date whereby it willbe possible to develop and make permanent the reorganization of theDepartment upon modern lines in a manner to make it a thoroughly efficientinstrument in the furtherance of our foreign trade and of Americaninterests abroad. The plan to have Divisions of Latin-American and FarEastern Affairs and to institute a certain specialization in business withEurope and the Near East will at once commend itself. Thesepolitico-geographical divisions and the detail from the diplomatic orconsular service to the Department of a number of men, who bring to thestudy of complicated problems in different parts of the world practicalknowledge recently gained on the spot, clearly is of the greatest advantageto the Secretary of State in foreseeing conditions likely to arise and inconducting the great variety of correspondence and negotiation. It shouldbe remembered that such facilities exist in the foreign offices of all theleading commercial nations and that to deny them to the Secretary of Statewould be to place this Government at a great disadvantage in the rivalry ofcommercial 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 yourconsideration the question of embodying in a statute the principles of thepresent Executive Order upon which the efficiency of our consular serviceis wholly dependent. 

In modern times political and commercial interests are interrelated, and inthe negotiation of commercial treaties, conventions and tariff agreements, the keeping open of opportunities and the proper support of Americanenterprises, our diplomatic service is quite as important as the consularservice to the business interests of the country. Impressed with this ideaand convinced that selection after rigorous examination, promotion formerit solely and the experience only to be gained through the continuity ofan organized service are indispensable to a high degree of efficiency inthe diplomatic service, I have signed an Executive Order as the first steptoward this very desirable result. Its effect should be to place allsecretaries in the diplomatic service in much the same position as consularofficers are now placed and to tend to the promotion of the most efficientto the grade of minister, generally leaving for outside appointments suchposts of the grade of ambassador or minister as it may be expedient to fillfrom without the service. It is proposed also to continue the practiceinstituted last summer of giving to all newly appointed secretaries atleast one month's thorough training in the Department of State before theyproceed to their posts. This has been done for some time in regard to theconsular service with excellent results. 

Under a provision of the Act of August 5, 1909, I have appointed threeofficials to assist the officers of the Government in collectinginformation necessary to a wise administration of the tariff act of August5, 1909. As to questions of customs administration they are cooperatingwith the officials of the Treasury Department and as to matters of theneeds and the exigencies of our manufacturers and exporters, with theDepartment of Commerce and Labor, in its relation to the domestic aspect ofthe subject of foreign commerce. In the study of foreign tariff treatmentthey 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 importantsubject all the agencies of the Government which can contribute anything toits efficient handling. 

As a consequence of Section 2 of the tariff act of August 5, 1909, itbecomes the duty of the Secretary of State to conduct as diplomaticbusiness all the negotiations necessary to place him in a position toadvise me as to whether or not a particular country unduly discriminatesagainst the United States in the sense of the statute referred to. Thegreat scope and complexity of this work, as well as the obligation to lendall proper aid to our expanding commerce, is met by the expansion of theBureau of Trade Relations as set forth in the estimates for the Departmentof State. 

OTHER DEPARTMENTS. 

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

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

GOVERNMENT EXPENDITURES AND REVENUES. 

Perhaps the most important question presented to this Administration isthat of economy in expenditures and sufficiency of revenue. The deficit ofthe last fiscal year, and the certain deficit of the current year, promptedCongress to throw a greater responsibility on the Executive and theSecretary of the Treasury than had heretofore been declared by statute. This declaration imposes upon the Secretary of the Treasury the duty ofassembling all the estimates of the Executive Departments, bureaus, andoffices, of the expenditures necessary in the ensuing fiscal year, and ofmaking 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 thePresident to recommend the method by which such deficit can be met. 

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

The policy of paying for the construction of the Panama Canal, not out ofcurrent revenue, but by bond issues, was adopted in the Spooner Act of1902, and there seems to be no good reason for departing from the principleby which a part at least of the burden of the cost of the canal shall fallupon our posterity who are to enjoy it; and there is all the more reasonfor this view because the actual cost to date of the canal, which is nowhalf done and which will be completed January 1, 1915, shows that the costof engineering and construction will be $297, 766, 000, instead of$139, 705, 200, as originally estimated. In addition to engineering andconstruction, the other expenses, including sanitation and government, andthe amount paid for the properties, the franchise, and the privilege ofbuilding 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 isdue to a substantial enlargement of the plan of construction by wideningthe canal 100 feet in the Culebra cut and by increasing the dimensions ofthe locks, to the underestimate of the quantity of the work to be doneunder the original plan, and to an underestimate of the cost of labor andmaterials both of which have greatly enhanced in price since the originalestimate was made. 

In order to avoid a deficit for the ensuing fiscal year, I directed theheads of Departments in the preparation of their estimates to make them aslow as possible consistent with imperative governmental necessity. Theresult has been, as I am advised by the Secretary of the Treasury, that theestimates for the expenses of the Government for the next fiscal yearending June 30, 1911, are less than the appropriations for this currentfiscal year by $42, 818, 000. So far as the Secretary of the Treasury is ableto form a judgment as to future income, and compare it with theexpenditures for the next fiscal year ending June 30, 1911, and excludingpayments on account of the Panama Canal, which will doubtless be taken upby bonds, there will be a surplus of $35, 931, 000. 

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

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

It has been impossible in the preparation of estimates greatly to reducethe cost of permanent administration. This can not be done without athorough reorganization of bureaus, offices, and departments. For thepurpose of securing information which may enable the executive and thelegislative branches to unite in a plan for the permanent reduction of thecost of governmental administration, the Treasury Department has institutedan investigation by one of the most skilled expert accountants in theUnited States. The result of his work in two or three bureaus, which, ifextended to the entire Government, must occupy two or more years, has beento show much room for improvement and opportunity for substantialreductions in the cost and increased efficiency of administration. Theobject of the investigation is to devise means to increase the averageefficiency of each employee. There is great room for improvement towardthis end, not only by the reorganization of bureaus and departments and inthe avoidance of duplication, but also in the treatment of the individualemployee. 

Under the present system it constantly happens that two employees receivethe same salary when the work of one is far more difficult and importantand exacting than that of the other. Superior ability is not rewarded orencouraged. As the classification is now entirely by salary, an employeeoften rises to the highest class while doing the easiest work, for whichalone he may be fitted. An investigation ordered by my predecessor resultedin the recommendation that the civil service he reclassified according tothe kind of work, so that the work requiring most application and knowledgeand ability shall receive most compensation. I believe such a change wouldbe fairer to the whole force and would permanently improve the personnel ofthe service. 

More than this, every reform directed toward the improvement in the averageefficiency of government employees must depend on the ability of theExecutive to eliminate from the government service those who areinefficient from any cause, and as the degree of efficiency in all theDepartments is much lessened by the retention of old employees who haveoutlived their energy and usefulness, it is indispensable to any propersystem of economy that provision be made so that their separation from theservice shall be easy and inevitable. It is impossible to make suchprovision unless there is adopted a plan of civil pensions. Most of thegreat industrial organizations, and many of the well-conducted railways ofthis country, are coming to the conclusion that a system of pensions forold employees, and the substitution therefor of younger and more energeticservants, promotes both economy and efficiency of administration. 

I am aware that there is a strong feeling in both Houses of Congress, andpossibly in the country, against the establishment of civil pensions, andthat 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 amstrongly convinced that no other practical solution of the difficultiespresented by the superannuation of civil servants can be found than that ofa system of civil pensions. 

The business and expenditures of the Government have expanded enormouslysince the Spanish war, but as the revenues have increased in nearly thesame proportion as the expenditures until recently, the attention of thepublic, and of those responsible for the Government, has not been fastenedupon the question of reducing the cost of administration. We can not, inview of the advancing prices of living, hope to save money by a reductionin the standard of salaries paid. Indeed, if any change is made in thatregard, an increase rather than a decrease will be necessary; and the onlymeans of economy will be in reducing the number of employees and inobtaining a greater average of efficiency from those retained in theservice. 

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

FRAUDS IN THE COLLECTION OF CUSTOMS. 

I regret to refer to the fact of the discovery of extensive frauds in thecollections of the customs revenue at New York City, in which a number ofthe subordinate employees in the weighing and other departments weredirectly concerned, and in which the beneficiaries were the American SugarRefining Company and others. The frauds consisted in the payment of duty onunderweights of sugar. The Government has recovered from the American SugarRefining Company all that it is shown to have been defrauded of. The sumwas received in full of the amount due, which might have been recovered bycivil suit against the beneficiary of the fraud, but there was an expressreservation in the contract of settlement by which the settlement shouldnot interfere with, or prevent the criminal prosecution of everyone who wasfound to be subject to the same. 

Criminal prosecutions are now proceeding against a number of the Governmentofficers. The Treasury Department and the Department of Justice areexerting every effort to discover all the wrongdoers, including theofficers and employees of the companies who may have been privy to thefraud. It would seem to me that an investigation of the frauds by Congressat present, pending the probing by the Treasury Department and theDepartment of Justice, as proposed, might by giving immunity and otherwiseprove 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 ofthe clause known as the "Maximum and Minimum" clause, it is the duty of theExecutive to consider the laws and practices of other countries withreference to the importation into those countries of the products andmerchandise of the United States, and if the Executive finds such laws andpractices not to be unduly discriminatory against the United States, theminimum duties provided in the bill are to go into force. 

Unless the President makes such a finding, then the maximum duties providedin the bill, that is, an increase of twenty-five per cent. Ad valorem overthe minimum duties, are to be in force. Fear has been expressed that thispower conferred and duty imposed on the Executive is likely to lead to atariff war. I beg to express the hope and belief that no such result needbe anticipated. 

The discretion granted to the Executive by the terms "undulydiscriminatory" is wide. In order that the maximum duty shall be chargedagainst the imports from a country, it is necessary that he shall find onthe part of that country not only discriminations in its laws or thepractice under them against the trade of the United States, but that thediscriminations found shall be undue; that is, without good and fairreason. I conceive that this power was reposed in the President with thehope that the maximum duties might never be applied in any case, but thatthe power to apply them would enable the President and the State Departmentthrough friendly negotiation to secure the elimination from the laws andthe practice under them of any foreign country of that which is undulydiscriminatory. No one is seeking a tariff war or a condition in which thespirit 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 inconnection with the Department of State in the administration of theminimum and maximum clause of the act and also to assist officers of theGovernment in the administration of the entire law. An examination of thelaw and an understanding of the nature of the facts which should beconsidered in discharging the functions imposed upon the Executive showthat I have the power to direct the tariff board to make a comprehensiveglossary and encyclopedia of the terms used and articles embraced in thetariff law, and to secure information as to the cost of production of suchgoods in this country and the cost of their production in foreigncountries. I have therefore appointed a tariff board consisting of threemembers 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 acontinuing annual appropriation equal to that already made for itsprosecution. I believe that the work of this board will be of prime utilityand importance whenever Congress shall deem it wise again to readjust thecustoms duties. If the facts secured by the tariff board are of such acharacter as to show generally that the rates of duties imposed by thepresent tariff law are excessive under the principles of protection asdescribed in the platform of the successful party at the late election, Ishall not hesitate to invite the attention of Congress to this fact and tothe necessity for action predicated thereon. Nothing, however, haltsbusiness and interferes with the course of prosperity so much as thethreatened revision of the tariff, and until the facts are at hand, aftercareful and deliberate investigation, upon which such revision can properlybe undertaken, it seems to me unwise to attempt it. The amount ofmisinformation that creeps into arguments pro and con in respect to tariffrates is such as to require the kind of investigation that I have directedthe tariff board to make, an investigation undertaken by it wholly withoutrespect to the effect which the facts may have in calling for areadjustment of the rates of duty. 

WAR DEPARTMENT. 

In the interest of immediate economy and because of the prospect of adeficit, I have required a reduction in the estimates of the War Departmentfor the coming fiscal year, which brings the total estimates down to anamount forty-five millions less than the corresponding estimates for lastyear. This could only be accomplished by cutting off new projects andsuspending for the period of one year all progress in military matters. Forthe same reason I have directed that the Army shall not be recruited up toits present authorized strength. These measures can hardly be more thantemporary--to last until our revenues are in better condition and until thewhole question of the expediency of adopting a definite military policy canbe submitted to Congress, for I am sure that the interests of the militaryestablishment are seriously in need of careful consideration by Congress. The laws regulating the organization of our armed forces in the event ofwar need to be revised in order that the organization can be modified so asto produce a force which would be more consistently apportioned throughoutits numerous branches. To explain the circumstances upon which this opinionis based would necessitate a lengthy discussion, and I postpone it untilthe first convenient opportunity shall arise to send to Congress a specialmessage upon this subject. 

The Secretary of War calls attention to a number of needed changes in theArmy in all of which I concur, but the point upon which I place mostemphasis is the need for an elimination bill providing a method by whichthe merits of officers shall have some effect upon their advancement and bywhich the advancement of all may be accelerated by the effectiveelimination of a definite proportion of the least efficient. There are inevery army, and certainly in ours, a number of officers who do not violatetheir duty in any such way as to give reason for a court-martial ordismissal, but who do not show such aptitude and skill and character forhigh command as to justify their remaining in the active service to bePromoted. Provision should be made by which they may be retired on acertain proportion of their pay, increasing with their length of service atthe time of retirement. There is now a personnel law for the Navy whichitself needs amendment and to which I shall make further reference. Such alaw is needed quite as much for the Army. 

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

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

THE NAVY. 

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

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

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

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

The use of a navy is for military purposes, and there has been found needin the Department of a military branch dealing directly with the militaryuse of the fleet. The Secretary of the Navy has also felt the lack ofresponsible advisers to aid him in reaching conclusions and decidingimportant matters between coordinate branches of the Department. To securethese results he has inaugurated a tentative plan involving certain changesin the organization of the Navy Department, including the navy-yards, allof which have been found by the Attorney-General to be in accordance withlaw. I have approved the execution of the plan proposed because of thegreater efficiency and economy it promises. 

The generosity of Congress has provided in the present Naval Observatorythe most magnificent and expensive astronomical establishment in the world. It is being used for certain naval purposes which might easily andadequately be subserved by a small division connected with the NavalDepartment at only a fraction of the cost of the present Naval Observatory. The official Board of Visitors established by Congress and appointed in1901 expressed its conclusion that the official head of the observatoryshould be an eminent astronomer appointed by the President by and with theadvice and consent of the Senate, holding his place by a tenure at least aspermanent as that of the Superintendent of the Coast Survey or the head ofthe 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 forthe appointment of such a director. 

It may not be necessary to take the observatory out of the Navy Departmentand put it into another department in which opportunity for scientificresearch 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 amsure, however, I express the desire of the astronomers and those learned inthe kindred sciences when I urge upon Congress that the Naval Observatorybe now dedicated to science under control of a man of science who can, ifneed be, render all the service to the Navy Department which thisobservatory now renders, and still furnish to the world the discoveries inastronomy that a great astronomer using such a plant would be likely tomake. 

DEPARTMENT OF JUSTICE EXPEDITION IN LEGAL PROCEDURE

The deplorable delays in the administration of civil and criminal law havereceived the attention of committees of the American Bar Association and ofmany State Bar Associations, as well as the considered thought of judgesand jurists. In my judgment, a change in judicial procedure, with a view toreducing its expense to private litigants in civil cases and facilitatingthe dispatch of business and final decision in both civil and criminalcases, constitutes the greatest need in our American institutions. I do notdoubt for one moment that much of the lawless violence and crueltyexhibited in lynchings is directly due to the uncertainties and injusticegrowing out of the delays in trials, judgments, and the executions thereofby our courts. Of course these remarks apply quite as well to theadministration of justice in State courts as to that in Federal courts, andwithout making invidious distinction it is perhaps not too much to saythat, speaking generally, the defects are less in the Federal courts thanin the State courts. But they are very great in the Federal courts. Theexpedition with which business is disposed of both on the civil and thecriminal side of English courts under modern rules of procedure makes thedelays in our courts seem archaic and barbarous. The procedure in theFederal courts should furnish an example for the State courts. I presume itis impossible, without an amendment to the Constitution, to unite under oneform of action the proceedings at common law and proceedings in equity inthe Federal courts, but it is certainly not impossible by a statute tosimplify and make short and direct the procedure both at law and in equityin those courts. It is not impossible to cut down still more than it is cutdown, the jurisdiction of the Supreme Court so as to confine it almostwholly to statutory and constitutional questions. Under the presentstatutes the equity and admiralty procedure in the Federal courts is underthe control of the Supreme Court, but in the pressure of business to whichthat court is subjected, it is impossible to hope that a radical and properreform of the Federal equity procedure can be brought about. I thereforerecommend legislation providing for the appointment by the President of acommission with authority to examine the law and equity procedure of theFederal courts of first instance, the law of appeals from those courts tothe courts of appeals and to the Supreme Court, and the costs imposed insuch procedure upon the private litigants and upon the public treasury andmake recommendation with a view to simplifying and expediting the procedureas far as possible and making it as inexpensive as may be to the litigantof little means. 

INJUNCTIONS WITHOUT NOTICE. 

The platform of the successful party in the last election contained thefollowing: "The Republican party will uphold at all times the authority andintegrity of the courts, State and Federal, and will ever insist that theirpowers to enforce their process and to protect life, liberty, and propertyshall be preserved inviolate. We believe, however, that the rules ofprocedure in the Federal courts with respect to the issuance of the writ ofinjunction should be more accurately defined by statute, and that noinjunction or temporary restraining order should be issued without notice, except where irreparable injury would result from delay, in which case aspeedy hearing thereafter should be granted. " I recommend that incompliance with the promise thus made, appropriate legislation be adopted. The ends of justice will best be met and the chief cause of complaintagainst ill-considered injunctions without notice will be removed by theenactment of a statute forbidding hereafter the issuing of any injunctionor restraining order, whether temporary or permanent, by any Federal court, without previous notice and a reasonable opportunity to be heard on behalfof the parties to be enjoined; unless it shall appear to the satisfactionof the court that the delay necessary to give such notice and hearing wouldresult in irreparable injury to the complainant and unless also the courtshall from the evidence make a written finding, which shall be spread uponthe court minutes, that immediate and irreparable injury is likely to ensueto the complainant, and shall define the injury, state why it isirreparable, and shall also endorse on the order issued the date and thehour of the issuance of the order. Moreover, every such injunction orrestraining order issued without previous notice and opportunity by thedefendant to be heard should by force of the statute expire and be of noeffect after seven days from the issuance thereof or within any time lessthan that period which the court may fix, unless within such seven days orsuch less period, the injunction or order is extended or renewed afterprevious notice and opportunity to be heard. 

My judgment is that the passage of such an act which really embodies thebest practice in equity and is very like the rule now in force in somecourts will prevent the issuing of ill-advised orders of injunction withoutnotice and will render such orders when issued much less objectionable bythe short time in which they may remain effective. 

ANTI-TRUST AND INTERSTATE COMMERCE LAWS. 

The jurisdiction of the General Government over interstate commerce has ledto the passage of the so-called "Sherman Anti-trust Law" and the"Interstate Commerce Law" and its amendments. The developments in theoperation of those laws, as shown by indictments, trials, judicialdecisions, and other sources of information, call for a discussion and somesuggestions as to amendments. These I prefer to embody in a special messageinstead of including them in the present communication, and I shall availmyself of the first convenient opportunity to bring these subjects to theattention 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 toinvestigate the jail, workhouse, etc. , in the District of Columbia, inwhich he directed attention to the report as setting forth vividly, "thereally outrageous conditions in the workhouse and jail. "

The Congress has taken action in pursuance of the recommendations of thatreport and of the President, to the extent of appropriating funds andenacting the necessary legislation for the establishment of a workhouse andreformatory. No action, however, has been taken by the Congress withrespect to the jail, the conditions of which are still antiquated andinsanitary. I earnestly recommend the passage of a sufficient appropriationto enable a thorough remodeling of that institution to be made withoutdelay. It is a reproach to the National Government that almost under theshadow of the Capitol Dome prisoners should be confined in a buildingdestitute of the ordinary decent appliances requisite to cleanliness andsanitary conditions. 

POST-OFFICE DEPARTMENT. SECOND-CLASS MAIL MATTER. 

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

It appears that the average distance over which newspapers are delivered totheir 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 themagazine is three and one-half times and that of the miscellaneousperiodical nearly four times the haul of the daily newspaper, yet all ofthem pay the same postage rate of 1 cent a pound. The statistics of 1907show that second-class mail matter constituted 63. 91 per cent. Of theweight 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 ofan enormous subsidy to the newspapers, magazines, and periodicals, andCongress may well consider whether radical steps should not be taken toreduce the deficit in the Post-Office Department caused by this discrepancybetween the actual cost of transportation and the compensation exactedtherefor. 

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. Theyare much heavier than newspapers, and contain a much higher proportion ofadvertising to reading matter, and the average distance of theirtransportation is three and a half times as great. 

The total deficit for the last fiscal year in the Post-Office Departmentamounted to $17, 500, 000. The branches of its business which it did at aloss were the second-class mail service, in which the loss, as alreadysaid, 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 letterpostage and other sources of income. It would seem wise to reduce the lossupon second-class mail matter, at least to the extent of preventing adeficit in the total operations of the Post-Office. 

I commend the whole subject to Congress, not unmindful of the spread ofintelligence which a low charge for carrying newspapers and periodicalsassists. I very much doubt, however, the wisdom of a policy whichconstitutes so large a subsidy and requires additional taxation to meetit. 

POSTAL SAVINGS BANKS. 

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

I believe them to be necessary in order to offer a proper inducement tothrift and saving to a great many people of small means who do not now havebanking facilities, and to whom such a system would offer an opportunityfor the accumulation of capital. They will furnish a satisfactorysubstitute, based on sound principle and actual successful trial in nearlyall the countries of the world, for the system of government guaranty ofdeposits now being adopted in several western States, which with deferenceto those who advocate it seems to me to have in it the seeds ofdemoralization to conservative banking and certain financial disaster. Thequestion of how the money deposited in postal savings banks shall beinvested is not free from difficulty, but I believe that a satisfactoryprovision for this purpose was inserted as an amendment to the billconsidered by the Senate at its last session. It has been proposed to delaythe consideration of legislation establishing a postal savings bank untilafter the report of the Monetary Commission. This report is likely to bedelayed, and properly so, cause of the necessity for careful deliberationand close investigation. I do not see why the one should be tied up withthe other. It is understood that the Monetary Commission have looked intothe systems of banking which now prevail abroad, and have found that by acontrol there exercised in respect to reserves and the rates of exchange bysome central authority panics are avoided. It is not apparent that a systemof postal savings banks would in any way interfere with a change to such asystem here. Certainly in most of the countries of Europe where control isthus exercised by a central authority, postal savings banks exist and arenot thought to be inconsistent with a proper financial and banking system. 

SHIP SUBSIDY. 

Following the course of my distinguished predecessor, I earnestly recommendto Congress the consideration and passage of a ship subsidy bill, lookingto the establishment of lines between our Atlantic seaboard and the easterncoast of South America, as well as lines from the west coast of the UnitedStates to South America. China, Japan, and the Philippines. The profits onforeign mails are perhaps a sufficient measure of the expenditures whichmight first be tentatively applied to this method of inducing Americancapital to undertake the establishment of American lines of steamships inthose directions in which we now feel it most important that we should havemeans of transportation controlled in the interest of the expansion of ourtrade. A bill of this character has once passed the House and more thanonce passed the Senate, and I hope that at this session a bill framed onthe 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 declaredin favor of the admission as separate States of New Mexico and Arizona, andI recommend that legislation appropriate to this end be adopted. I urge, however, that care be exercised in the preparation of the legislationaffecting each Territory to secure deliberation in the selection of personsas members of the convention to draft a constitution for the incomingState, and I earnestly advise that such constitution after adoption by theconvention shall be submitted to the people of the Territory for theirapproval at an election in which the sole issue shall be the merits of theproposed constitution, and if the constitution is defeated by popular votemeans shall be provided in the enabling act for a new convention and thedrafting of a new constitution. I think it vital that the issue as to themerits of the constitution should not be mixed up with the selection ofState officers, and that no election of State officers should be had untilafter the constitution has been fully approved and finally settled upon. ALASKA. 

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

CONSERVATION OF NATIONAL RESOURCES. 

In several Departments there is presented the necessity for legislationlooking to the further conservation of our national resources, and thesubject is one of such importance as to require a more detailed andextended discussion than can be entered upon in this communication. Forthat reason I shall take an early opportunity to send a special message toCongress on the subject of the improvement of our waterways, upon thereclamation and irrigation of arid, semiarid, and swamp lands; upon thepreservation of our forests and the reforesting of suitable areas; upon thereclassification of the public domain with a view of separating fromagricultural settlement mineral, coal, and phosphate lands and sitesbelonging to the Government bordering on streams suitable for theutilization of water power. 

DEPARTMENT OF AGRICULTURE. 

I commend to your careful consideration the report of the Secretary ofAgriculture as showing the immense sphere of usefulness which thatDepartment now fills and the wonderful addition to the wealth of the nationmade 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 ofCommerce and Labor. For upwards of forty years this Board has beenconstituted of military and naval officers and two or three men of science, with such an absence of a duly constituted executive head that it ismarvelous what work has been accomplished. In the period of constructionthe energy and enthusiasm of all the members prevented the inherent defectsof the system from interfering greatly with the beneficial work of theBoard, but now that the work is chiefly confined to maintenance and repair, for which purpose the country is divided into sixteen districts, to whichare 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 hasbecome apparent by the frequent friction that arises, due to the absence ofany central independent authority, that there must be a completereorganization of the Board. I concede the advantage of keeping in thesystem the rigidity of discipline that the presence of naval and militaryofficers in charge insures, but unless the presence of such officers in theBoard can be made consistent with a responsible executive head that shallhave proper authority, I recommend the transfer of control over thelight-houses to a suitable civilian bureau. This is in accordance with thejudgment of competent persons who are familiar with the workings of thepresent system. I am confident that a reorganization can be effected whichshall avoid the recurrence of friction between members, instances of whichhave been officially brought to my attention, and that by suchreorganization greater efficiency and a substantial reduction in theexpense of operation can be brought about. 

CONSOLIDATION OF BUREAUS. 

I request Congressional authority to enable the Secretary of Commerce andLabor to unite the Bureaus of Manufactures and Statistics. This wasrecommended by a competent committee appointed in the previousadministration for the purpose of suggesting changes in the interest ofeconomy 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 Bureauof Immigration and other sources of information lead to the view that thereis urgent necessity for additional legislation and greater executiveactivity to suppress the recruiting of the ranks of prostitutes from thestreams of immigration into this country--an evil which, for want of abetter name, has been called "The White Slave Trade. " I believe it to beconstitutional to forbid, under penalty, the transportation of persons forpurposes of prostitution across national and state lines; and byappropriating a fund of $50, 000 to be used by the Secretary of Commerce andLabor for the employment of special inspectors it will be possible to bringthose responsible for this trade to indictment and conviction under afederal 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 aconcentration of the instruments of the National Government which have todo with the promotion of public health. In the nature of things, theMedical Department of the Army and the Medical Department of the Navy mustbe kept separate. But there seems to be no reason why all the other bureausand offices in the General Government which have to do with the publichealth or subjects akin thereto should not be united in a bureau to becalled the "Bureau of Public Health. " This would necessitate the transferof the Marine-Hospital Service to such a bureau. I am aware that there iswide field in respect to the public health committed to the States in whichthe Federal Government can not exercise jurisdiction, but we have seen inthe Agricultural Department the expansion into widest usefulness of adepartment giving attention to agriculture when that subject is plainly oneover which the States properly exercise direct jurisdiction. Theopportunities offered for useful research and the spread of usefulinformation in regard to the cultivation of the soil and the breeding ofstock and the solution of many of the intricate problems in progressiveagriculture have demonstrated the wisdom of establishing that department. Similar reasons, of equal force, can be given for the establishment of abureau of health that shall not only exercise the police jurisdiction ofthe Federal Government respecting quarantine, but which shall also affordan opportunity for investigation and research by competent experts intoquestions of health affecting the whole country, or important sectionsthereof, questions which, in the absence of Federal governmental work, arenot likely to be promptly solved. 

CIVIL SERVICE COMMISSION. 

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

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

POLITICAL CONTRIBUTIONS. 

I urgently recommend to Congress that a law be passed requiring thatcandidates in elections of Members of the House of Representatives, andcommittees in charge of their candidacy and campaign, file in a properoffice of the United States Government a statement of the contributionsreceived and of the expenditures incurred in the campaign for suchelections and that similar legislation be enacted in respect to all otherelections which are constitutionally within the control of Congress. 

FREEDMAN'S SAVINGS AND TRUST COMPANY. 

Recommendations have been made by my predecessors that Congress appropriatea sufficient sum to pay the balance--about 38 per cent. --of the amounts duedepositors in the Freedman's Savings and Trust Company. I renew thisrecommendation, and advise also that a proper limitation be prescribedfixing a period within which the claims may be presented, that assignedclaims be not recognized, and that a limit be imposed on the amount of feescollectible for services in presenting such claims. 

SEMI-CENTENNIAL OF NEGRO FREEDOM. 

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

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

I heartily indorse this proposal, and request that the Executive beauthorized to appoint a preliminary commission of not more than sevenpersons to consider carefully whether or not it is wise to hold such anexposition, and if so, to outline a plan for the enterprise. I furtherrecommend that such preliminary commission serve without salary, except asto their actual expenses, and that an appropriation be made to meet suchexpenses. 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 theexceptions already noted. Speaking generally, the country is in a highstate of prosperity. There is every reason to believe that we are on theeve of a substantial business expansion, and we have just garnered aharvest unexampled in the market value of our agricultural products. Thehigh prices which such products bring mean great prosperity for the farmingcommunity, but on the other hand they mean a very considerably increasedburden upon those classes in the community whose yearly compensation doesnot expand with the improvement in business and the general prosperity. Various reasons are given for the high prices. The proportionate increasein the output of gold, which to-day is the chief medium of exchange and isin some respects a measure of value, furnishes a substantial explanation ofat least a part of the increase in prices. The increase in population andthe more expensive mode of living of the people, which have not beenaccompanied by a proportionate increase in acreage production, may furnisha further reason. It is well to note that the increase in the cost ofliving is not confined to this country, but prevails the world over, andthat those who would charge increases in prices to the existing protectivetariff must meet the fact that the rise in prices has taken place almostwholly in those products of the factory and farm in respect to which therehas been either no increase in the tariff or in many instances a veryconsiderable reduction. 

***

State of the Union AddressWilliam H. TaftDecember 6, 1910

To the Senate and House of Representatives:

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

The year has been notable as witnessing the pacific settlement of twoimportant international controversies before the Permanent Court of TheHague. 

The arbitration of the Fisheries dispute between the United States andGreat Britain, which has been the source of nearly continuous diplomaticcorrespondence since the Fisheries Convention of 1818, has given an awardwhich is satisfactory to both parties. This arbitration is particularlynoteworthy not only because of the eminently just results secured, but alsobecause it is the first arbitration held under the general arbitrationtreaty of April 4, 1908, between the United States and Great Britain, anddisposes of a controversy the settlement of which has resisted every otherresource of diplomacy, and which for nearly ninety years has been the causeof friction between two countries whose common interest lies in maintainingthe most friendly and cordial relations with each other. 

The United States was ably represented before the tribunal. The complicatedhistory of the questions arising made the issue depend, more thanordinarily in such cases, upon the care and skill with which our case waspresented, and I should be wanting in proper recognition of a greatpatriotic service if I did not refer to the lucid historical analysis ofthe facts and the signal ability and force of the argument--six days inlength--presented to the Court in support of our case by Mr. Elihu Root. AsSecretary of State, Mr. Root had given close study to the intricate factsbearing on the controversy, and by diplomatic correspondence had helped toframe the issues. At the solicitation of the Secretary of State and myself, Mr. Root, though burdened by his duties as Senator from New York, undertookthe preparation of the case as leading counsel, with the condition imposedby himself that, in view of his position as Senator, he should not receiveany compensation. 

The Tribunal constituted at The Hague by the Governments of the UnitedStates and Venezuela has completed its deliberations and has rendered anaward in the case of the Orinoco Steamship Company against Venezuela. Theaward may be regarded as satisfactory since it has, pursuant to thecontentions of the United States, recognized a number of importantprinciples making for a judicial attitude in the determining ofinternational disputes. 

In view of grave doubts which had been raised as to the constitutionalityof The Hague Convention for the establishment of an International PrizeCourt, now before the Senate for ratification, because of that provision ofthe Convention which provides that there may be an appeal to the proposedCourt from the decisions of national courts, this government proposed in anIdentic Circular Note addressed to those Powers who had taken part in theLondon Maritime Conference, that the powers signatory to the Convention, ifconfronted with such difficulty, might insert a reservation to the effectthat appeals to the International Prize Court in respect to decisions ofits national tribunals, should take the form of a direct claim forcompensation; that the proceedings thereupon to be taken should be in theform of a trial de novo, and that judgment of the Court should consist ofcompensation for the illegal capture, irrespective of the decision of thenational court whose judgment had thus been internationally involved. Asthe result of an informal discussion it was decided to provide suchprocedure by means of a separate protocol which should be ratified at thesame time as the Prize Court Convention itself. 

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

The Identic Circular Note also proposed that the International Prize Courtwhen established should be endowed with the functions of an Arbitral Courtof Justice under and pursuant to the recommendation adopted by the lastHague Conference. The replies received from the various powers to thisproposal inspire the hope that this also may be accomplished within thereasonably near future. 

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

PEACE COMMISSION. 

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

I have not as yet made appointments to this Commission because I haveinvited and am awaiting the expressions of foreign governments as to theirwillingness to cooperate with us in the appointment of similar commissionsor representatives who would meet with our commissioners and by jointaction seek to make their work effective. 

GREAT BRITAIN AND CANADA. 

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

An agreement between the United States and Great Britain with regard to thelocation of the international boundary line between the United States andCanada in Passamaquoddy Bay and to the middle of Grand Manan Channel wasreached in a Treaty concluded May 21, 1910, which has been ratified by bothGovernments and proclaimed, thus making unnecessary the arbitrationprovided for in the previous treaty of April 11, 1908. 

The Convention concluded January 11, 1909, between the United States andGreat Britain providing for the settlement of international differencesbetween the United States and Canada including the apportionment betweenthe two countries of certain of the boundary waters and the appointment ofCommissioners to adjust certain other questions has been ratified by bothGovernments and proclaimed. 

The work of the International Fisheries Commission appointed in 1908, underthe treaty of April 11, 1908, between Great Britain and the United States, has resulted in the formulation and recommendation of uniform regulationsgoverning the fisheries of the boundary waters of Canada and the UnitedStates for the purpose of protecting and increasing the supply of food fishin such waters. In completion of this work, the regulations agreed uponrequire congressional legislation to make them effective and for theirenforcement in fulfillment of the treaty stipulations. PORTUGAL. 

In October last the monarchy in Portugal was overthrown, a provisionalRepublic was proclaimed, and there was set up a de facto Government whichwas promptly recognized by the Government of the United States for purposesof ordinary intercourse pending formal recognition by this and other Powersof the Governmental entity to be duly established by the nationalsovereignty. LIBERIA. 

A disturbance among the native tribes of Liberia in a portion of theRepublic during the early part of this year resulted in the sending, underthe Treaty of 1862, of an American vessel of war to the disaffecteddistrict, and the Liberian authorities, assisted by the good offices of theAmerican Naval Officers, were able to restore order. The negotiations whichhave been undertaken for the amelioration of the conditions found inLiberia by the American Commission, whose report I transmitted to Congresson March 25 last, are being brought to conclusion, and it is thought thatwithin a short time practical measures of relief may be put into effectthrough the good offices of this Government and the cordial cooperation ofother governments interested in Liberia's welfare. 

THE NEAR EAST. TURKEY. 

To return the visit of the Special Embassy announcing the accession of HisMajesty Mehemet V, Emperor of the Ottomans, I sent to Constantinople aSpecial Ambassador who, in addition to this mission of ceremony, wascharged with the duty of expressing to the Ottoman Government the valueattached by the Government of the United States to increased and moreimportant relations between the countries and the desire of the UnitedStates to contribute to the larger economic and commercial development dueto the new regime in Turkey. 

The rapid development now beginning in that ancient empire and the markedprogress and increased commercial importance of Bulgaria, Roumania, andServia make it particularly opportune that the possibilities of Americancommerce in the Near East should receive due attention. MONTENEGRO. 

The National Skoupchtina having expressed its will that the Principality ofMontenegro be raised to the rank of Kingdom, the Prince of Montenegro onAugust 15 last assumed the title of King of Montenegro. It gave me pleasureto 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 hasagain been China. 

It is gratifying to note that the negotiations for a loan to the ChineseGovernment for the construction of the trunk railway lines from Hankowsouthward to Canton and westward through the Yangtse Valley, known as theHukuang Loan, were concluded by the representatives of the variousfinancial groups in May last and the results approved by their respectivegovernments. The agreement, already initialed by the Chinese Government, isnow awaiting formal ratification. The basis of the settlement of the termsof this loan was one of exact equality between America, Great Britain, France, and Germany in respect to financing the loan and supplyingmaterials for the proposed railways and their future branches. 

The application of the principle underlying the policy of the United Statesin regard to the Hukuang Loan, viz. , that of the internationalization ofthe foreign interest in such of the railways of China as may be financed byforeign countries, was suggested on a broader scale by the Secretary ofState in a proposal for internationalization and commercial neutralizationof all the railways of Manchuria. While the principle which led to theproposal of this Government was generally admitted by the powers to whom itwas addressed, the Governments of Russia and Japan apprehended practicaldifficulties in the execution of the larger plan which prevented theirready adherence. The question of constructing the Chinchow-Aigun railway bymeans of an international loan to China is, however, still the subject offriendly discussion by the interested parties. 

The policy of this Government in these matters has been directed by adesire to make the use of American capital in the development of China aninstrument in the promotion of China's welfare and material prosperitywithout prejudice to her legitimate rights as an independent politicalpower. 

This policy has recently found further exemplification in the assistancegiven by this Government to the negotiations between China and a group ofAmerican bankers for a loan of $50, 000, 000 to be employed chiefly incurrency reform. The confusion which has from ancient times existed in themonetary usages of the Chinese has been one of the principal obstacles tocommercial intercourse with that people. The United States in its Treaty of1903 with China obtained a pledge from the latter to introduce a uniformnational coinage, and the following year, at the request of China, thisGovernment sent to Peking a member of the International ExchangeCommission, to discuss with the Chinese Government the best methods ofintroducing the reform. In 1908 China sent a Commissioner to the UnitedStates to consult with American financiers as to the possibility ofsecuring a large loan with which to inaugurate the new currency system, butthe death of Their Majesties, the Empress Dowager and the Emperor of China, interrupted the negotiations, which were not resumed until a few monthsago, when this Government was asked to communicate to the bankers concernedthe request of China for a loan of $50, 000, 000 for the purpose underreview. A preliminary agreement between the American group and China hasbeen made covering the loan. 

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

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

The year has further been marked by two important international agreementsrelating to Far Eastern affairs. In the Russo-Japanese Agreement relatingto Manchuria, signed July 4, 1910, this Government was gratified to note anassurance of continued peaceful conditions in that region and thereaffirmation of the policies with respect to China to which the UnitedStates together with all other interested powers are alike solemnlycommitted. 

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 byher powerful neighbor that has been in progress for several years past. Incommunicating the fact of annexation the Japanese Government gave to theGovernment of the United States assurances of the full protection of therights of American citizens in Korea under the changed conditions. 

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

LATIN AMERICA. 

During the past year several of our southern sister Republics celebratedthe one hundredth anniversary of their independence. In honor of theseevents, special embassies were sent from this country to Argentina, Chile, and Mexico, where the gracious reception and splendid hospitality extendedthem manifested the cordial relations and friendship existing between thosecountries and the United States, relations which I am happy to believe havenever before been upon so high a plane and so solid a basis as at present. 

The Congressional commission appointed under a concurrent resolution toattend the festivities celebrating the centennial anniversary of Mexicanindependence, together with a special ambassador, were received with thehighest honors and with the greatest cordiality, and returned with thereport of the bounteous hospitality and warm reception of President Diazand the Mexican people, which left no doubt of the desire of theimmediately neighboring Republic to continue the mutually beneficial andintimate relations which I feel sure the two governments will evercherish. 

At the Fourth Pan-American Conference which met in Buenos Aires during Julyand August last, after seven weeks of harmonious deliberation, threeconventions 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 oftrade-marks the protection needed in localities where heretofore it hasbeen either lacking or inadequate. Further, a convention for thearbitration of pecuniary claims was signed and a number of importantresolutions passed. The Conventions will in due course be transmitted tothe Senate, and the report of the Delegation of the United States will becommunicated to the Congress for its information. The special cordialitybetween representative men from all parts of America which was shown atthis Conference cannot fail to react upon and draw still closer therelations between the countries which took part in it. 

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

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

There has been signed by the representatives of the United States andMexico a protocol submitting to the United States-Mexican BoundaryCommission (whose membership for the purpose of this case is to beincreased by the addition of a citizen of Canada) the question ofsovereignty over the Chamizal Tract which lies within the present physicalboundaries of the city of E1 Paso, Tex. The determination of this questionwill remove a source of no little annoyance to the two Governments. 

The Republic of Honduras has for many years been burdened with a heavybonded debt held in Europe, the interest on which long ago fell in arrears. Finally conditions were such that it became imperative to refund the debtand place the finances of the Republic upon a sound basis. Last year agroup of American bankers undertook to do this and to advance funds forrailway and other improvements contributing directly to the country'sprosperity and commerce--an arrangement which has long been desired by thisGovernment. Negotiations to this end have been under way for more than ayear and it is now confidently believed that a short time will suffice toconclude an arrangement which will be satisfactory to the foreigncreditors, eminently advantageous to Honduras, and highly creditable to thejudgment and foresight of the Honduranean Government. This is much to bedesired since, as recognized by the Washington Conventions, a strongHonduras would tend immensely to the progress and prosperity of CentralAmerica. 

During the past year the Republic of Nicaragua has been the scene ofinternecine struggle. General Zelaya, for seventeen years the absoluteruler of Nicaragua, was throughout his career the disturber of CentralAmerica and opposed every plan for the promotion of peace and friendlyrelations between the five republics. When the people of Nicaragua werefinally driven into rebellion by his lawless exactions, he violated thelaws of war by the unwarranted execution of two American citizens who hadregularly enlisted in the ranks of the revolutionists. This and otheroffenses made it the duty of the American Government to take measures witha view to ultimate reparation and for the safeguarding of its interests. This involved the breaking off of all diplomatic relations with the ZelayaGovernment for the reasons laid down in a communication from the Secretaryof State, which also notified the contending factions in Nicaragua thatthis Government would hold each to strict accountability for outrages onthe rights of American citizens. American forces were sent to both coastsof Nicaragua to be in readiness should occasion arise to protect Americansand their interests, and remained there until the war was over and peacehad returned to that unfortunate country. These events, together withZelaya's continued exactions, brought him so clearly to the bar of publicopinion that he was forced to resign and to take refuge abroad. 

In the above-mentioned communication of the Secretary of State to theCharge d'Affaires of the Zelaya Government, the opinion was expressed thatthe revolution represented the wishes of the majority of the Nicaraguanpeople. This has now been proved beyond doubt by the fact that since thecomplete overthrow of the Madriz Government and the occupation of thecapital by the forces of the revolution, all factions have united tomaintain public order and as a result of discussion with an Agent of thisGovernment, 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 andconciliatory spirit shown by the various factions give ground for theconfident hope that Nicaragua will soon take its rightful place among thelaw-abiding and progressive countries of the world. 

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

TARIFF NEGOTIATIONS. 

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

In the case of several countries instances of apparent undue discriminationagainst American commerce were found to exist. These discriminations wereremoved by negotiation. Prior to April 1, 1910, when the maximum tariff wasto come into operation with respect to importations from all thosecountries in whose favor no proclamation applying the minimum tariff shouldbe issued by the President, one hundred and thirty-four such proclamationswere issued. This series of proclamations embraced the entire commercialworld, and hence the minimum tariff of the United States has been givenuniversal application, thus testifying to the satisfactory character of ourtrade relations with foreign countries. 

Marked advantages to the commerce of the United States were obtainedthrough these tariff settlements. Foreign nations are fully cognizant ofthe fact that under section 2 of the tariff act the President is required, whenever he is satisfied that the treatment accorded by them to theproducts of the United States is not such as to entitle them to thebenefits of the minimum tariff of the United States, to withdraw thosebenefits by proclamation giving ninety days' notice, after which themaximum tariff will apply to their dutiable products entering the UnitedStates. In its general operation this section of the tariff law has thusfar proved a guaranty of continued commercial peace, although there areunfortunately instances where foreign governments deal arbitrarily withAmerican interests within their jurisdiction in a manner injurious andinequitable. 

The policy of broader and closer trade relations with the Dominion ofCanada which was initiated in the adjustment of the maximum and minimumprovisions of the Tariff Act of August, 1909, has proved mutuallybeneficial. It justifies further efforts for the readjustment of thecommercial relations of the two countries so that their commerce may followthe channels natural to contiguous countries and be commensurate with thesteady expansion of trade and industry on both sides of the boundary line. The reciprocation on the part of the Dominion Government of the sentimentwhich was expressed by this Government was followed in October by thesuggestion that it would be glad to have the negotiations, which had beentemporarily suspended during the summer, resumed. In accordance with thissuggestion the Secretary of State, by my direction, dispatched tworepresentatives of the Department of State as special commissioners toOttawa to confer with representatives of the Dominion Government. They wereauthorized to take such steps for formulating a reciprocal trade agreementas might be necessary and to receive and consider any propositions whichthe Dominion Government might care to submit. 

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

The negotiations were conducted on both sides in a spirit of mutualaccommodation. The discussion of the common commercial interests of the twocountries had for its object a satisfactory basis for a trade arrangementwhich offers the prospect of a freer interchange for the products of theUnited States and of Canada. The conferences were adjourned to be resumedin Washington in January, when it is hoped that the aspiration of bothGovernments for a mutually advantageous measure of reciprocity will berealized. 

FOSTERING FOREIGN TRADE. 

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

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

The efforts of that Department to secure for citizens of the United Statesequal opportunities in the markets of the world and to expand Americancommerce have been most successful. The volume of business obtained in newfields of competition and upon new lines is already very great and Congressis urged to continue to support the Department of State in its endeavorsfor further trade expansion. 

Our foreign trade merits the best support of the Government and the mostearnest endeavor of our manufacturers and merchants, who, if they do notalready in all cases need a foreign market, are certain soon to becomedependent on it. Therefore, now is the time to secure a strong position inthis field. 

AMERICAN BRANCH BANKS ABROAD. 

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

AID TO OUR FOREIGN MERCHANT MARINE. 

Another instrumentality indispensable to the unhampered and naturaldevelopment of American commerce is merchant marine. All maritime andcommercial nations recognize the importance of this factor. The greatestcommercial nations, our competitors, jealously foster their merchantmarine. Perhaps nowhere is the need for rapid and direct mail, passengerand freight communication quite so urgent as between the United States andLatin America. We can secure in no other quarter of the world suchimmediate benefits in friendship and commerce as would flow from theestablishment of direct lines Of communication with the countries of LatinAmerica adequate to meet the requirements of a rapidly increasingappreciation of the reciprocal dependence of the countries of the WesternHemisphere upon each other's products, sympathies and assistance. 

I alluded to this most important subject in my last annual message; it hasoften been before you and I need not recapitulate the reasons for itsrecommendation. Unless prompt action be taken the completion of the PanamaCanal will find this the only great commercial nation unable to avail ininternational maritime business of this great improvement in the means ofthe 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 navalreserve and where could we find, in case of war, the transports andsubsidiary vessels without which a naval fleet is arms without a body? Formany reasons I cannot too strongly urge upon the Congress the passage of ameasure by mail subsidy or other subvention adequate to guarantee theestablishment and rapid development of an American merchant marine, and therestoration of the American flag to its ancient place upon the seas. 

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

FEDERAL PROTECTION TO ALIENS. 

With our increasing international intercourse, it becomes incumbent upon meto repeat more emphatically than ever the recommendation which I made in myInaugural Address that Congress shall at once give to the Courts of theUnited States jurisdiction to punish as a crime the violation of the rightsof aliens secured by treaty with the United States, in order that thegeneral government of the United States shall be able, when called upon bya friendly nation, to redeem its solemn promise by treaty to secure to thecitizens or subjects of that nation resident in the United States, freedomfrom violence and due process of law in respect to their life, liberty andproperty. 

MERIT SYSTEM FOR DIPLOMATIC AND CONSULAR SERVICE. 

I also strongly commend to the favorable action of the Congress theenactment of a law applying to the diplomatic and consular service theprinciples embodied in Section 1753 of the Revised Statutes of the UnitedStates, in the Civil Service Act of January 16, 1883, and the ExecutiveOrders of June 27, 1906, and of November 26, 1909. The excellent resultswhich have attended the partial application of Civil Service principles tothe diplomatic and consular services are an earnest of the benefit to bewrought by a wider and more permanent extension of those principles to bothbranches of the foreign service. The marked improvement in the consularservice during the four years since the principles of the Civil Service Actwere applied to that service in a limited way, and the good results alreadynoticeable from a similar application of civil service principles to thediplomatic service a year ago, convince me that the enactment into law ofthe general principles of the existing executive regulations could not failto effect further improvement of both branches of the foreign service, offering as it would by its assurance of permanency of tenure and promotionon merit, an inducement for the entry of capable young men into the serviceand an incentive to those already in to put forth their best efforts toattain and maintain that degree of efficiency which the interests of ourinternational 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 Congressin favor of Government ownership of embassy and legation premises abroad. The arguments in favor of such ownership have been many and oft repeatedand are well known to the Congress. The acquisition by the Government ofsuitable residences and offices for its diplomatic officers, especially inthe capitals of the Latin-American States and of Europe, is so importantand necessary to an improved diplomatic service that I have no hesitationin urging upon the Congress the passage of some measure similar to thatfavorably reported by the House Committee on Foreign Affairs on February14, 1910 (Report No. 438), that would authorize the gradual and annualacquisition of premises for diplomatic use. 

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

TREASURY DEPARTMENT. 

ESTIMATES FOR NEXT YEAR'S EXPENSES. 

Every effort has been made by each department chief to reduce the estimatedcost of his department for the ensuing fiscal year ending June 30, 1912. Isay this in order that Congress may understand that these estimates thusmade present the smallest sum which will maintain the departments, bureaus, and offices of the Government and meet its other obligations under existinglaw, and that a cut of these estimates would result in embarrassing theexecutive branch of the Government in the performance of its duties. Thisremark does not apply to the river and harbor estimates, except to thosefor expenses of maintenance and the meeting of obligations under authorizedcontracts, nor does it apply to the public building bill nor to the navybuilding program. Of course, as to these Congress could withhold any partor all of the estimates for them without interfering with the discharge ofthe ordinary obligations of the Government or the performance of thefunctions of its departments, bureaus, and offices. 

A FIFTY-TWO MILLION CUT. 

The final estimates for the year ending June 30, 1912, as they have beensent to the Treasury, on November 29 of this year, for the ordinaryexpenses of the Government, including those for public buildings, riversand harbors, and the navy building program, amount to $630, 494, 013. 12. Thisis $52, 964, 887. 36 less than the appropriations for the fiscal year endingJune 30, 1911. It is $16, 883, 153. 44 less than the total estimates, including supplemental estimates submitted to Congress by the Treasury forthe year 1911, and is $5, 574, 659. 39 less than the original estimatessubmitted by the Treasury for 1911. 

These figures do not include the appropriations for the Panama Canal, thepolicy in respect to which ought to be, and is, to spend as much each yearas can be economically and effectively expended in order to complete theCanal as promptly as possible, and, therefore, the ordinary motive forcutting down the expense of the Government does not apply to appropriationsfor this purpose. It will be noted that the estimates for the Panama Canalfor the ensuing year are more than fifty-six millions of dollars, anincrease of twenty millions over the amount appropriated for this year--adifference due to the fact that the estimates for 1912 include somethingover nineteen millions for the fortification of the Canal. Against theestimated expenditures of $630, 494, 013. 12, the Treasury has estimatedreceipts for next year $680, 000, 000, making a probable surplus of ordinaryreceipts over ordinary expenditures of about $50, 000, 000. 

A table showing in detail the estimates and the comparisons referred tofollows. 

TYPICAL ECONOMIES. 

The Treasury Department is one of the original departments of theGovernment. With the changes in the monetary system made from time to timeand with the creation of national banks, it was thought necessary toorganize new bureaus and divisions which were added in a somewhat haphazardway and resulted in a duplication of duties which might well now be ended. This lack of system and economic coordination has attracted the attentionof the head of that Department who has been giving his time for the lasttwo years, with the aid of experts and by consulting his bureau chiefs, toits reformation. He has abolished four hundred places in the civil servicewithout at all injuring its efficiency. Merely to illustrate the characterof the reforms that are possible, I shall comment on some of the specificchanges 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 methodsused are antiquated. There are six Auditors and seven Assistant Auditorsfor the nine departments, and under the present system the only functionwhich the Auditor of a department exercises is to determine, on accountspresented by disbursing officers, that the object of the expenditure waswithin the law and the appropriation made by Congress for the purpose onits face, and that the calculations in the accounts are correct. He doesnot examine the merits of the transaction or determine the reasonablenessof the price paid for the articles purchased, nor does he furnish anysubstantial check upon disbursing officers and the heads of departments orbureaus with sufficient promptness to enable the Government to recoupitself in full measure for unlawful expenditure. A careful plan is beingdevised and will be presented to Congress with the recommendation that theforce of auditors and employees under them be greatly reduced, therebyeffecting substantial economy. But this economy will be small compared withthe larger economy that can be effected by consolidation and change ofmethods. The possibilities in this regard have been shown in the reductionof expenses and the importance of methods and efficiency in the office ofthe Auditor for the Post Office Department, who, without in the slightestdegree impairing the comprehensiveness and efficiency of his work, has cutdown the expenses of his office $120, 000 a year. 

Statement of estimates of appropriations for the fiscal years 1912 and1911, and of appropriations for 1911, showing increases and decreases. -Final Estimates for 1912 as of November 29 - Original Estimates submittedby the Treasury for 1911 - Total Estimates for 1911 including supplementals- Appropriations for 1911 - Increase (+) and decrease (-), 1912 estimatesagainst 1911 total estimates - Increase (+) and decrease (-), 1912estimates 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 AddressWilliam H. TaftDecember 5, 1911

Jump to Part II | Part III | Part IV

This message is the first of several which I shall send to Congress duringthe interval between the opening of its regular session and its adjournmentfor the Christmas holidays. The amount of information to be communicated asto the operations of the Government, the number of important subjectscalling for comment by the Executive, and the transmission to Congress ofexhaustive reports of special commissions, make it impossible to include inone message of a reasonable length a discussion of the topics that ought tobe brought to the attention of the National Legislature at its firstregular session. 

THE ANTI-TRUST LAW-THE SUPREME COURT DECISIONS. 

In May last the Supreme Court handed down decisions in the suits in equitybrought by the United States to enjoin the further maintenance of theStandard Oil Trust and of the American Tobacco Trust, and to secure theirdissolution. The decisions are epoch-making and serve to advise thebusiness world authoritatively of the scope and operation of the anti-trustact of 1890. The decisions do not depart in any substantial way from theprevious decisions of the court in construing and applying this importantstatute, but they clarify those decisions by further defining the alreadyadmitted exceptions to the literal construction of the act. By the decrees, they furnish a useful precedent as to the proper method of dealing with thecapital and property of illegal trusts. These decisions suggest the needand wisdom of additional or supplemental legislation to make it easier forthe entire business community to square with the rule of action andlegality thus finally established and to preserve the benefit, freedom, andspur of reasonable competition without loss of real efficiency orprogress. 

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 restraintof trade or commerce among the several States or with foreign nations, " andin the second, declares guilty of a misdemeanor "every person who shallmonopolize or attempt to monopolize or combine or conspire with any otherperson to monopolize any part of the trade or commerce of the severalStates or with foreign nations. "

In two early cases, where the statute was invoked to enjoin atransportation rate agreement between interstate railroad companies, it washeld that it was no defense to show that the agreement as to ratescomplained of was reasonable at common law, because it was said that thestatute was directed against all contracts and combinations in restraint oftrade whether reasonable at common law or not. It was plain from therecord, however, that the contracts complained of in those cases would nothave been deemed reasonable at common law. In subsequent cases the courtsaid that the statute should be given a reasonable construction and refusedto include within its inhibition, certain contractual restraints of tradewhich it denominated as incidental or as indirect. 

These cases of restraint of trade that the court excepted from theoperation of the statute were instances which, at common law, would havebeen called reasonable. In the Standard Oil and Tobacco cases, therefore, the court merely adopted the tests of the common law, and in definingexceptions to the literal application of the statute, only substituted forthe test of being incidental or indirect, that of being reasonable, andthis, without varying in the slightest the actual scope and effect of thestatute. In other words, all the cases under the statute which have nowbeen decided would have been decided the same way if the court hadoriginally accepted in its construction the rule at common law. 

It has been said that the court, by introducing into the construction ofthe statute common-law distinctions, has emasculated it. This is obviouslyuntrue. By its judgment every contract and combination in restraint ofinterstate trade made with the purpose or necessary effect of controllingprices by stifling competition, or of establishing in whole or in part amonopoly of such trade, is condemned by the statute. The most extremecritics can not instance a case that ought to be condemned under thestatute which is not brought within its terms as thus construed. 

The suggestion is also made that the Supreme Court by its decision in thelast two cases has committed to the court the undefined and unlimiteddiscretion to determine whether a case of restraint of trade is within theterms of the statute. This is wholly untrue. A reasonable restraint oftrade at common law is well understood and is clearly defined. It does notrest in the discretion of the court. It must be limited to accomplish thepurpose of a lawful main contract to which, in order that it shall beenforceable at all, it must be incidental. If it exceed the needs of thatcontract, it is void. 

The test of reasonableness was never applied by the court at common law tocontracts or combinations or conspiracies in restraint of trade whosepurpose was or whose necessary effect would be to stifle competition, tocontrol prices, or establish monopolies. The courts never assumed power tosay that such contracts or combinations or conspiracies might be lawful ifthe parties to them were only moderate in the use of the power thus securedand did not exact from the public too great and exorbitant prices. It istrue that many theorists, and others engaged in business violating thestatute, have hoped that some such line could be drawn by courts; but nocourt of authority has ever attempted it. Certainly there is nothing in thedecisions of the latest two cases from which such a dangerous theory ofjudicial discretion in enforcing this statute can derive the slightestsanction. 

FORCE AND EFFECTIVENESS OF STATUTE A MATTER OF GROWTH. 

We have been twenty-one years making this statute effective for thepurposes for which it was enacted. The Knight case was discouraging andseemed to remit to the States the whole available power to attack andsuppress the evils of the trusts. Slowly, however, the error of thatjudgment was corrected, and only in the last three or four years has theheavy hand of the law been laid upon the great illegal combinations thathave exercised such an absolute dominion over many of our industries. Criminal prosecutions have been brought and a number are pending, butjuries have felt averse to convicting for jail sentences, and judges havebeen most reluctant to impose such sentences on men of respectable standingin society whose offense has been regarded as merely statutory. Still, asthe offense becomes better understood and the committing of it partakesmore of studied and deliberate defiance of the law, we can be confidentthat juries will convict individuals and that jail sentences will beimposed. 

THE REMEDY IN EQUITY BY DISSOLUTION. 

In the Standard Oil case the Supreme and Circuit Courts found thecombination to be a monopoly of the interstate business of refining, transporting, and marketing petroleum and its products, effected andmaintained through thirty-seven different corporations, the stock of whichwas held by a New Jersey company. It in effect commanded the dissolution ofthis combination, directed the transfer and pro rata distribution by theNew Jersey company of the stock held by it in the thirty-seven corporationsto and among its stockholders; and the corporations and individualdefendants were enjoined from conspiring or combining to restore suchmonopoly; and all agreements between the subsidiary corporations tending toproduce 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 acquirecomplete dominion over the manufacture, sale, and distribution of tobaccoin this country and abroad, and that this had been done by combinationsmade with a purpose and effect to stifle competition, control prices, andestablish a monopoly, not only in the manufacture of tobacco, but also oftin-foil and licorice used in its manufacture and of its products ofcigars, cigarettes, and snuffs. The tobacco suit presented a far morecomplicated and difficult case than the Standard Oil suit for a decreewhich would effectuate the will of the court and end the violation of thestatute. There was here no single holding company as in the case of theStandard Oil Trust. The main company was the American Tobacco Company, amanufacturing, selling, and holding company. The plan adopted to destroythe combination and restore competition involved the redivision of thecapital and plants of the whole trust between some of the companiesconstituting the trust and new companies organized for the purposes of thedecree and made parties to it, and numbering, new and old, fourteen. 

SITUATION AFTER READJUSTMENT. 

The American Tobacco Company (old), readjusted capital, $92, 000, 000; theLiggett & Meyers Tobacco Company (new), capital, $67, 000, 000; the P. Lorillard Company (new), capital, $47, 000, 000; and the R. J. ReynoldsTobacco Company (old), capital, $7, 525, 000, are chiefly engaged in themanufacture and sale of chewing and smoking tobacco and cigars. The formerone tinfoil company is divided into two, one of $825, 000 capital and theother 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 twoone with a capital Of $5, 758, 300 and another with a capital of $200, 000. There is, also, the British-American Tobacco Company, a Britishcorporation, doing business abroad with a capital Of $26, 000, 000, the PortoRican Tobacco Company, with a capital of $1, 800, 000, and the corporation ofUnited Cigar Stores, with a capital of $9, 000, 000. 

Under this arrangement, each of the different kinds of business will bedistributed between two or more companies with a division of the prominentbrands in the same tobacco products, so as to make competition not onlypossible but necessary. Thus the smoking-tobacco business of the country isdivided 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 theReynolds Company 2. 66 per cent. The stock of the other thirteen companies, both preferred and common, has been taken from the defendant AmericanTobacco Company and has been distributed among its stockholders. Allcovenants restricting competition have been declared null and furtherperformance of them has been enjoined. The preferred stock of the differentcompanies has now been given voting power which was denied it under the oldorganization. The ratio of the preferred stock to the common was as 78 to40. This constitutes a very decided change in the character of theownership and control of each company. 

In the original suit there were twenty-nine defendants who were chargedwith being the conspirators through whom the illegal combination acquiredand exercised its unlawful dominion. Under the decree these defendants. Will hold amounts of stock in the various distributee companies rangingfrom 41 per cent as a maximum to 28. 5 per cent as a minimum, except in thecase of one small company, the Porto Rican Tobacco Company, in which theywill hold 45 per cent. The twenty-nine individual defendants are enjoinedfor three years from buying any stock except from each other, and the groupis thus prevented from extending its control during that period. Allparties to the suit, and the new companies who are made parties areenjoined perpetually from in any way effecting any combination between anyof the companies in violation of the statute by way of resumption of theold trust. Each of the fourteen companies is enjoined from acquiring stockin any of the others. All these companies are enjoined from having commondirectors or officers, or common buying or selling agents, or commonoffices, or lending money to each other. 

SIZE OF NEW COMPANIES. 

Objection was made by certain independent tobacco companies that thissettlement was unjust because it left companies with very large capital inactive business, and that the settlement that would be effective to put allon an equality would be a division of the capital and plant of the trustinto small fractions in amount more nearly equal to that of each of theindependent companies. This contention results from a misunderstanding ofthe anti-trust law and its purpose. It is not intended thereby to preventthe accumulation of large capital in business enterprises in which such acombination can secure reduced cost of production, sale, and distribution. It is directed against such an aggregation of capital only when its purposeis that of stifling competition, enhancing or controlling prices, andestablishing a monopoly. If we shall have by the decree defeated thesepurposes and restored competition between the large units into which thecapital and plant have been divided, we shall have accomplished the usefulpurpose of the statute. 

CONFISCATION NOT THE PURPOSE OF THE STATUTE. 

It is not the purpose of the statute to confiscate the property and capitalof the offending trusts. Methods of punishment by fine or imprisonment ofthe individual offenders, by fine of the corporation or by forfeiture ofits goods in transportation, are provided, but the proceeding in equity isa specific remedy to stop the operation of the trust by injunction andprevent the future use of the plant and capital in violation of thestatute. 

EFFECTIVENESS OF DECREE. 

I venture to say that not in the history of American law has a decree moreeffective for such a purpose been entered by a court than that against theTobacco Trust. As Circuit judge Noyes said in his judgment approving thedecree:

"The extent to which it has been necessary to tear apart this combinationand force it into new forms with the attendant burdens ought to demonstratethat the Federal anti-trust statute is a drastic statute which accomplisheseffective results; which so long as it stands on the statute books must beobeyed, and which can not be disobeyed without incurring far-reachingpenalties. And, on the other hand, the successful reconstruction of thisorganization should teach that the effect of enforcing this statute is notto destroy, but to reconstruct; not to demolish, but to re-create inaccordance with the conditions which the Congress has declared shall existamong the people of the United States. "

COMMON STOCK OWNERSHIP. 

It has been assumed that the present pro rata and common ownership in allthese companies by former stockholders of the trust would insure acontinuance of the same old single control of all the companies into whichthe trust has by decree been disintegrated. This is erroneous and is basedupon the assumed inefficacy and innocuousness of judicial injunctions. Thecompanies are enjoined from cooperation or combination; they have differentmanagers, directors, purchasing and sales agents. If all or many of thenumerous stockholders, reaching into the thousands, attempt to secureconcerted 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 tocontempt proceedings and imprisonment of a summary character. The immediateresult of the present situation will necessarily be activity by all thecompanies under different managers, and then competition must follow, orthere will be activity by one company and stagnation by another. Only ashort time will inevitably lead to a change in ownership of the stock, asall opportunity for continued cooperation must disappear. Those critics whospeak of this disintegration in the trust as a mere change of garments havenot given consideration to the inevitable working of the decree andunderstand little the personal danger of attempting to evade or set atnaught the solemn injunction of a court whose object is made plain by thedecree and whose inhibitions are set forth with a detail andcomprehensiveness. 

VOLUNTARY REORGANIZATIONS OF OTHER TRUSTS AT HAND. 

The effect of these two decisions has led to decrees dissolving thecombination of manufacturers of electric lamps, a southern wholesalegrocers' association, an interlocutory decree against the Powder Trust withdirections by the circuit court compelling dissolution, and othercombinations of a similar history are now negotiating with the Departmentof justice looking to a disintegration by decree and reorganization inaccordance with law. It seems possible to bring about these reorganizationswithout general business disturbance. 

MOVEMENT FOR REPEAL OF THE ANTI-TRUST LAW. 

But now that the anti-trust act is seen to be effective for theaccomplishment of the purpose of its enactment, we are met by a cry frommany different quarters for its repeal. It is said to be obstructive ofbusiness progress to be an attempt to restore old-fashioned methods ofdestructive competition between small units, and to make impossible thoseuseful combinations of capital and the reduction of the cost of productionthat are essential to continued prosperity and normal growth. 

In the recent decisions the Supreme Court makes clear that there is nothingin the statute which condemns combinations of capital or mere bigness ofplant organized to secure economy in production and a reduction of itscost. It is only when the purpose or necessary effect of the organizationand maintenance of the combination or the aggregation of immense size arethe stifling of competition, actual and potential, and the enhancing ofprices and establishing a monopoly, that the statute is violated. Mere sizeis no sin against the law. The merging of two or more business plantsnecessarily eliminates competition between the units thus combined, butthis elimination is in contravention of the statute only when thecombination is made for purpose of ending this particular competition inorder 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 definitein its description of that which is forbidden, to enable business men toavoid its violation. The suggestion is, that we may have a combination oftwo corporations, which may run on for years, and that subsequently theAttorney General may conclude that it was a violation of the statute, andthat which was supposed by the combiners to be innocent then turns out tobe a combination in violation of the statute. The answer to thishypothetical case is that when men attempt to amass such stupendous capitalas will enable them to suppress competition, control prices and establish amonopoly, they know the purpose of their acts. Men do not do such a thingwithout having it clearly in mind. If what they do is merely for thepurpose of reducing the cost of production, without the thought ofsuppressing competition by use of the bigness of the plant they arecreating, then they can not be convicted at the time the union is made, norcan they be convicted later, unless it happen that later on they concludeto suppress competition and take the usual methods for doing so, and thusestablish for themselves a monopoly. They can, in such a case, hardlycomplain if the motive which subsequently is disclosed is attributed by thecourt to the original combination. 

NEW REMEDIES SUGGESTED. 

Much is said of the repeal of this statute and of constructive legislationintended to accomplish the purpose and blaze a clear path for honestmerchants and business men to follow. It may be that such a plan will beevolved, but I submit that the discussions which have been brought out inrecent days by the fear of the continued execution of the anti-trust lawhave produced nothing but glittering generalities and have offered no lineof distinction or rule of action as definite and as clear as that which theSupreme 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 enactmentof a law which shall describe and denounce methods of competition which areunfair and are badges of the unlawful purpose denounced in the anti-trustlaw. The attempt and purpose to suppress a competitor by underselling himat a price so unprofitable as to drive him out of business, or the makingof exclusive contracts with customers under which they are required to giveup association with other manufacturers, and numerous kindred methods forstifling competition and effecting monopoly, should be described withsufficient accuracy in a criminal statute on the one hand to enable theGovernment to shorten its task by prosecuting single misdemeanors insteadof an entire conspiracy, and, on the other hand, to serve the purpose ofpointing out more in detail to the business community what must beavoided. 

FEDERAL INCORPORATION RECOMMENDED. 

In a special message to Congress on January 7, 1910, I ventured to pointout the disturbance to business that would probably attend the dissolutionof these offending trusts. I said:

"But such an investigation and possible prosecution of corporations whoseprosperity or destruction affects the comfort not only of stockholders butof millions of wage earners, employees, and associated tradesmen mustnecessarily tend to disturb the confidence of the business community, todry up the now flowing sources of capital from its places of hoarding, andproduce a halt in our present prosperity that will cause suffering andstrained circumstances among the innocent many for the faults of the guiltyfew. The question which I wish in this message to bring clearly to theconsideration and discussion of Congress is whether, in order to avoid sucha possible business danger, something can not be done by which thesebusiness combinations may be offered a means, without great financialdisturbance, of changing the character, organization, and extent of theirbusiness into one within the lines of the law under Federal control andsupervision, securing compliance with the anti-trust statute. 

"Generally, in the industrial combinations called 'trusts, ' the principalbusiness is the sale of goods in many States and in foreign markets; inother words, the interstate and foreign business far exceeds the businessdone in any one State. This fact will justify the Federal Government ingranting a Federal charter to such a combination to make and sell ininterstate and foreign commerce the products of useful manufacture undersuch limitations as will secure a compliance with the anti-trust law. It ispossible so to frame a statute that while it offers protection to a Federalcompany against harmful, vexatious, and unnecessary invasion by the States, it shall subject it to reasonable taxation and control by the States withrespect to its purely local business. * * *

"Corporations organized under this act should be prohibited from acquiringand holding stock in other corporations (except for special reasons, uponapproval by the proper Federal authority), thus avoiding the creation undernational auspices of the holding company with subordinate corporations indifferent States, which has been such an effective agency in the creationof the great trusts and monopolies. 

"If the prohibition of the anti-trust act against combinations in restraintof trade is to be effectively enforced, it is essential that the NationalGovernment shall provide for the creation of national corporations to carryon a legitimate business throughout the United States. The conflicting lawsof the different States of the Union with respect to foreign corporationsmake it difficult, if not impossible, for one corporation to comply withtheir requirements so as to carry on business in a number of differentStates. "

I renew the recommendation of the enactment of a general law providing forthe voluntary formation of corporations to engage in trade and commerceamong the States and with foreign nations. Every argument which was thenadvanced for such a law, and every explanation which was at that timeoffered to possible objections, have been confirmed by our experience sincethe enforcement of the antitrust, statute has resulted in the actualdissolution of active commercial organizations. 

It is even more manifest now than it was then that the denunciation ofconspiracies in restraint of trade should not and does not mean the denialof organizations large enough to be intrusted with our interstate andforeign trade. It has been made more clear now than it was then that apurely negative statute like the anti-trust law may well be supplemented byspecific provisions for the building up and regulation of legitimatenational and foreign commerce. 

GOVERNMENT ADMINISTRATIVE EXPERTS NEEDED TO AID COURTS IN TRUSTDISSOLUTIONS. 

The drafting of the decrees in the dissolution of the present trusts, witha view to their reorganization into legitimate corporations, has made itespecially apparent that the courts are not provided with theadministrative machinery to make the necessary inquiries preparatory toreorganization, or to pursue such inquiries, and they should be empoweredto invoke the aid of the Bureau of Corporations in determining the suitablereorganization of the disintegrated parts. The circuit court and theAttorney General were greatly aided in framing the decree in the TobaccoTrust 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 whichmight supply the constructive legislation permitting and aiding theformation of combinations of capital into Federal corporations. They shouldbe subject to rigid rules as to their organization and procedure, includingeffective publicity, and to the closest supervision as to the issue ofstock and bonds by an executive bureau or commission in the Department ofCommerce and Labor, to which in times of doubt they might well submit theirproposed plans for future business. It must be distinctly understood thatincorporation under Federal law could not exempt the company thus formedand its incorporators and managers from prosecution under the anti-trustlaw for subsequent illegal conduct, but the publicity of its procedure andthe opportunity for frequent consultation with the bureau or commission incharge of the incorporation as to the legitimate purpose of itstransactions would offer it as great security against successfulprosecutions for violations of the law as would be practical or wise. 

Such a bureau or commission might well be invested also with the dutyalready referred to, of aiding courts in the dissolution and recreation oftrusts within the law. It should be an executive tribunal of the dignityand power of the Comptroller of the Currency or the Interstate CommerceCommission, which now exercise supervisory power over important classes ofcorporations under Federal regulation. 

The drafting of such a Federal incorporation law would offer ampleopportunity to prevent many manifest evils in corporate management to-day, including irresponsibility of control in the hands of the few who are notthe real owners. 

INCORPORATION VOLUNTARY. 

I recommend that the Federal charters thus to be granted shall bevoluntary, at least until experience justifies mandatory provisions. Thebenefit to be derived from the operation of great businesses under theprotection of such a charter would attract all who are anxious to keepwithin the lines of the law. Other large combinations that fail to takeadvantage of the Federal incorporation will not have a right to complain iftheir failure is ascribed to unwillingness to submit their transactions tothe careful official scrutiny, competent supervision, and publicityattendant upon the enjoyment of such a charter. 

ONLY SUPPLEMENTAL LEGISLATION NEEDED. 

The opportunity thus suggested for Federal incorporation, it seems tome, issuitable constructive legislation needed to facilitate the squaring Ofgreat industrial enterprises to the rule of action laid down by theanti-trust law. This statute as construed by the Supreme Court mustcontinue to be the line of distinction for legitimate business. It must beenforced, unless we are to banish individualism from all business andreduce it to one common system of regulation or control of prices like thatwhich now prevails with respect to public utilities, and which when appliedto 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-lovingpeople to preserve equality of opportunity. It is the result of theconfident determination of such a people to maintain their future growth bypreserving uncontrolled and unrestricted the enterprise of the individual, his industry, his ingenuity, his intelligence, and his independentcourage. 

For twenty years or more this statute has been upon the statute book. Allknew its general purpose and approved. Many of its violators were cynicalover its assumed impotence. It seemed impossible of enforcement. Slowly themills of the courts ground, and only gradually did the majesty of the lawassert itself. Many of its statesmen-authors died before it became a livingforce, and they and others saw the evil grow which they had hoped todestroy. Now its efficacy is seen; now its power is heavy; now its objectis near achievement. Now we hear the call for its repeal on the plea thatit interferes with business prosperity, and we are advised in most generalterms, how by some other statute and in some other way the evil we are juststamping out can be cured, if we only abandon this work of twenty years andtry another experiment for another term of years. 

It is said that the act has not done good. Can this be said in the face ofthe effect of the Northern Securities decree? That decree was in no way sodrastic or inhibitive in detail as either the Standard Oil decree or theTobacco decree; but did it not stop for all time the then powerful movementtoward 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 theRepublic, even though exercised under the general supervision of aninterstate commission. 

Do we desire to make such ruthless combinations and monopolies lawful? Whenall energies are directed, not toward the reduction of the cost ofproduction for the public benefit by a healthful competition, but towardnew ways and means for making permanent in a few hands the absolute controlof the conditions and prices prevailing in the whole field of industry, then individual enterprise and effort will be paralyzed and the spirit ofcommercial freedom will be dead. 

PART II. 

The relations of the United States with other countries have continuedduring the past twelve months upon a basis of the usual good will andfriendly intercourse. ARBITRATION. 

The year just passed marks an important general movement on the part of thePowers for broader arbitration. In the recognition of the manifold benefitsto mankind in the extension of the policy of the settlement ofinternational disputes by arbitration rather than by war, and in responseto a widespread demand for an advance in that direction on the part of thepeople of the United States and of Great Britain and of France, newarbitration treaties were negotiated last spring with Great Britain andFrance, the terms of which were de signed, as expressed in the preamble ofthese treaties, to extend the scope and obligations of the policy ofarbitration adopted in our present treaties with those Governments To pavethe way for this treat with the United States, Great Britain negotiated animportant modification in its alliance with Japan, and the FrenchGovernment also expedited the negotiations with signal good will. The newtreaties have been submitted to the Senate and are awaiting its advice andconsent to their ratification. All the essentials of these importanttreaties have long been known, and it is my earnest hope that they willreceive 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 ofHis Britannic Majesty George V, to whom, as amiable compositeur, the matterhad been referred for determination. His Majesty made an award of nearly$1, 000, 000 to the claimants, which was promptly paid by Chile. Thesettlement of this controversy has happily eliminated from the relationsbetween the Republic of Chile and the United States the only question whichfor two decades had given the two foreign offices any serious concern andmakes possible the unobstructed development of the relations of friendshipwhich it has been the aim of this Government in every possible way tofurther and cultivate. 

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

In further illustration of the practical and beneficent application of theprinciple of arbitration and the underlying broad spirit of conciliation, Iam happy to advert to the part of the United States in facilitatingamicable settlement of disputes which menaced the peace between Panama andCosta Rica and between Haiti and the Dominican Republic. 

Since the date of their independence, Colombia and Costa Rica had beenseeking a solution of a boundary dispute, which came as an heritage fromColombia to the new Republic of Panama, upon its beginning life as anindependent nation. Although the disputants had submitted this question fordecision to the President of France under the terms of an arbitrationtreaty, the exact interpretation of the provisions of the award renderedhad been a matter of serious disagreement between the two countries, bothcontending for widely different lines even under the terms of the decision. Subsequently and since 1903 this boundary question had been the subject offruitless diplomatic negotiations between the parties. In January, 1910, atthe request of both Governments the agents representing them met inconference at the Department of State and subsequently concluded a protocolsubmitting this long-pending controversy to the arbitral judgment of theChief justice of the United States, who consented to act in this capacity. A boundary commission, according to the international agreement, has nowbeen appointed, and it is expected that the arguments will shortly proceedand that this long-standing dispute will be honorably and satisfactorilyterminated. 

Again, a few months ago it appeared that the Dominican Republic and Haitiwere about to enter upon hostilities because of complications growing outof an acrimonious boundary dispute which the efforts of many years hadfailed to solve. The Government of the United States, by a friendlyinterposition of good offices, succeeded in prevailing upon the parties toplace their reliance upon some form of pacific settlement. Accordingly, onthe friendly suggestion of this Government, the two Governments empoweredcommissioners to meet at Washington in conference at the State Departmentin order to arrange the terms of submission to arbitration of the boundarycontroversy. 

CHAMIZAL ARBITRATION NOT SATISFACTORY. 

Our arbitration of the Chamizal boundary question with Mexico wasunfortunately abortive, but with the earnest efforts on the part of bothGovernments which its importance commands, it is felt that an earlypractical adjustment should prove possible. 

LATIN AMERICA. VENEZUELA. 

During the past year the Republic of Venezuela celebrated the one hundredthanniversary of its independence. The United States sent, in honor of thisevent, a special embassy to Caracas, where the cordial reception andgenerous hospitality shown it were most gratifying as a further proof ofthe good relations and friendship existing between that country and theUnited States. MEXICO. 

The recent political events in Mexico received attention from thisGovernment because of the exceedingly delicate and difficult situationcreated along our southern border and the necessity for taking measuresproperly to safeguard American interests. The Government of the UnitedStates, in its desire to secure a proper observance and enforcement of theso-called neutrality statutes of the Federal Government, issued directionsto the appropriate officers to exercise a diligent and vigilant regard forthe requirements of such rules and laws. Although a condition of actualarmed conflict existed, there was no official recognition of belligerencyinvolving the technical neutrality obligations of international law. 

On the 6th of March last, in the absence of the Secretary of State, I had apersonal interview with Mr. Wilson, the ambassador of the United States toMexico, in which he reported to me that the conditions in Mexico were muchmore critical than the press dispatches disclosed; that President Diaz wason a volcano of popular uprising; that the small outbreaks which hadoccurred were only symptomatic of the whole condition; that a very largeper cent of the people were in sympathy with the insurrection; that ageneral explosion was probable at any time, in which case he feared thatthe 40, 000 or more American residents in Mexico might be assailed, and thatthe 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 SanAntonio, Tex. , a brigade of three regiments at Galveston, a brigade ofInfantry in the Los Angeles district of southern California, together witha squadron of battleships and cruisers and transports at Galveston, and asmall squadron of ships at San Diego. At the same time, through ourrepresentative at the City of Mexico, I expressed to President Diaz thehope that no apprehensions might result from unfounded conjectures as tothese military maneuvers, and assured him that they had no significancewhich should cause concern to his Government. 

The mobilization was effected with great promptness, and on the 15th ofMarch, through the Secretary of War and the Secretary of the Navy, in aletter addressed to the Chief of Staff, I issued the followinginstructions: It seems my duty as Commander in Chief to place troops insufficient number where, if Congress shall direct that they enter Mexico tosave American lives and property, an effective movement may be promptlymade. Meantime, the movement of the troops to Texas and elsewhere near theboundary, accompanied with sincere assurances of the utmost goodwill towardthe present Mexican Government and with larger and more frequent patrolsalong the border to prevent insurrectionary expeditions from American soil, will hold up the hands of the existing Government and will have a healthymoral effect to prevent attacks upon Americans and their property in anysubsequent general internecine strife. Again, the sudden mobilization of adivision of troops has been a great test of our Army and full of usefulinstruction, while the maneuvers that are thus made possible can occupy thetroops and their officers to great advantage. 

The assumption by the press that I contemplate intervention on Mexican soilto protect American lives or property is of course gratuitous, because Iseriously doubt whether I have such authority under any circumstances, andif I had I would not exercise it without express congressional approval. Indeed, as you know, I have already declined, without Mexican consent, toorder a troop of Cavalry to protect the breakwater we are constructing justacross the border in Mexico at the mouth of the Colorado River to save theImperial Valley, although the insurrectos had scattered the Mexican troopsand were taking our horses and supplies and frightening our workmen away. My determined purpose, however, is to be in a position so that when dangerto American lives and property in Mexico threatens and the existingGovernment is rendered helpless by the insurrection, I can promptly executecongressional orders to protect them, with effect. 

Meantime, I send you this letter, through the Secretary, to call yourattention to some things in connection with the presence of the division inthe Southwest which have doubtless occurred to you, but which I wish toemphasize. 

In the first place, I want to make the mobilization a first-class trainingfor the Army, and I wish you would give your time and that of the WarCollege to advising and carrying out maneuvers of a useful character, andplan to continue to do this during the next three months. By that time wemay expect that either Ambassador Wilson's fears will have been realizedand chaos and its consequences have ensued, or that the present Governmentof Mexico will have so readjusted matters as to secure tranquillity-aresult devoutly to be wished. The troops can then be returned to theirposts. I understood from you in Washington that Gen. Aleshire said that youcould probably meet all the additional expense of this whole movement outof the present appropriations if the troops continue in Texas for threemonths. I sincerely hope this is so. I observe from the newspapers that youhave no blank cartridges, but I presume that this is an error, or that itwill 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, 000troops into it without running some risk of a collision between the peopleof that State, and especially the Mexicans who live in Texas near theborder 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 frictionof any kind. We were able in Cuba, with the army of pacification there ofsomething more than 5, 000 troops, to maintain them for a year without anytrouble, and I hope you can do the same thing in Texas. Please give yourattention to this, and advise all the officers in command of the necessityfor very great circumspection in this regard. 

Third. One of the great troubles in the concentration of troops is thedanger of disease, and I suppose that you have adopted the most modernmethods for preventing and, if necessary, for stamping out epidemics. Thatis so much a part of a campaign that it hardly seems necessary for me tocall attention to it. 

Finally, I wish you to examine the question of the patrol of the border andput as many troops on that work as is practicable, and more than are nowengaged in it, in order to prevent the use of our borderland for thecarrying out of the insurrection. I have given assurances to the Mexicanambassador on this point. 

I sincerely hope that this experience will always be remembered by the Armyand Navy as a useful means of education, and I should be greatlydisappointed if it resulted in any injury or disaster to our forces fromany cause. I have taken a good deal of responsibility in ordering thismobilization, but I am ready to answer for it if only you and those underyou use the utmost care to avoid the difficulties which I have pointedout. 

You may have a copy of this letter made and left with Gen. Carter and suchother generals in command as you may think wise and necessary to guide themin their course, but to be regarded as confidential. I am more than happyto here record the fact that all apprehensions as to the effect of thepresence of so large a military force in Texas proved groundless; nodisturbances occurred; the conduct of the troops was exemplary and thepublic reception and treatment of them was all that could have beendesired, and this notwithstanding the presence of a large number of Mexicanrefugees in the border territory. 

From time to time communications were received from Ambassador Wilson, whohad returned to Mexico, confirming the view that the massing of Americantroops in the neighborhood had had good effect. By dispatch of April 3, 1911, the ambassador said: The continuing gravity of the situation here andthe chaos that would ensue should the constitutional authorities beeventually overthrown, thus greatly increasing the danger to which Americanlives and property are already subject, confirm the wisdom of the Presidentin taking those military precautions which, making every allowance for thedignity and the sovereignty of a friendly state, are due to our nationalsabroad. 

Charged as I am with the responsibility of safeguarding these lives andproperty, I am bound to say to the department that our militarydispositions on the frontier have produced an effective impression on theMexican mind and may, at any moment, prove to be the only guaranties forthe safety of our nationals and their property. If it should eventuate thatconditions here require more active measures by the President and Congress, sporadic attacks might be made upon the lives and property of ournationals, but the ultimate result would be order and adequate protection. The insurrection continued and resulted In engagements between the regularMexican troops and the insurgents, and this along the border, so that inseveral instances bullets from the contending forces struck Americancitizens engaged in their lawful occupations on American soil. 

Proper protests were made against these invasions of American rights to theMexican authorities. On April 17, 1911, I received the following telegramfrom the governor of Arizona: As a result of to-day's fighting across theinternational line, but within gunshot range of the heart of Douglas, fiveAmericans wounded on this side of the line. Everything points to repetitionof these casualties on to-morrow, and while the Federals seem disposed tokeep their agreement not to fire into Douglas, the position of theinsurrectionists is such that when fighting occurs on the east andsoutheast of the intrenchments people living in Douglas are put in dangerof their lives. In my judgment radical measures are needed to protect ourinnocent people, and if anything can be done to stop the fighting at AguaPrieta the situation calls for such action. It is impossible to safeguardthe people of Douglas unless the town be vacated. Can anything be done torelieve situation, now acute? After a conference with the Secretary ofState, the following telegram was sent to Governor Sloan, on April IS, 19119 11, and made public: Your dispatch received. Have made urgent demand uponMexican Government to issue instructions to prevent firing across border byMexican federal troops, and am waiting reply. Meantime I have sent directwarning to the Mexican and insurgent forces near Douglas. I infer from yourdispatch that both parties attempt to heed the warning, but that in thestrain and exigency of the contest wild bullets still find their way intoDouglas. The situation might justify me in ordering our troops to cross theborder and attempt to stop the fighting, or to fire upon both combatantsfrom the American side. But if I take this step, I must face thepossibility of resistance and greater bloodshed, and also the danger ofhaving our motives misconstrued and misrepresented, and of thus inflamingMexican popular indignation against many thousand Americans now in Mexicoand jeopardizing their lives and property. The pressure for generalintervention 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 urgentrepresentation to the Mexican Government, I can not therefore order thetroops at Douglas to cross the border, but I must ask you and the localauthorities, in case the same danger recurs, to direct the people ofDouglas to place themselves where bullets can not reach them and thus avoidcasualty. I am loath to endanger Americans in Mexico, where they arenecessarily exposed, by taking a radical step to prevent injury toAmericans on our side of the border who can avoid it by a temporaryinconvenience. I am glad to say that no further invasion of American rightsof any substantial character occurred. 

The presence of a large military and naval force available for promptaction, near the Mexican border, proved to be most fortunate under thesomewhat trying conditions presented by this invasion of American rightsHad no movement theretofore taken place, and because of these events it hadbeen necessary then to bring about the mobilization, it must have hadsinister significance. On the other hand, the presence of the troops beforeand at the time of the unfortunate killing and wounding of Americancitizens at Douglas, made clear that the restraint exercised by ourGovernment in regard to this Occurrence was not due to lack of force orpower to deal with it promptly and aggressively, but was due to a realdesire to use every means possible to avoid direct intervention in theaffairs of our neighbor whose friendship we valued and were most anxious toretain. 

The policy and action of this Government were based upon an earnestfriendliness for the Mexican people as a whole, and it is a matter ofgratification to note that this attitude of strict impartiality as to allfactions in Mexico and of sincere friendship for the neighboring nation, without regard for party allegiance, has been generally recognized and hasresulted in an even closer and more sympathetic understanding between thetwo Republics and a warmer regard one for the other. Action to suppressviolence and restore tranquillity throughout the Mexican Republic was ofpeculiar interest to this Government, in that it concerned the safeguardingof American life and property in that country. The Government of the UnitedStates had occasion to accord permission for the passage of a body ofMexican rurales through Douglas, Arizona, to Tia Juana, Mexico, for thesuppression of general lawlessness which had for some time existed in theregion of northern Lower California. On May 25, 1911, President Diazresigned, Senor de la Barra was chosen provisional President. Elections forPresident and Vice President were thereafter held throughout the Republic, and Senor Francisco I. Madero was formally declared elected on October 15to the chief magistracy. On November 6 President Madero entered upon theduties of his office. 

Since the inauguration of President Madero a plot has been unearthedagainst the present Government, to begin a new insurrection. Pursuing thesame consistent policy which this administration has adopted from thebeginning, it directed an investigation into the conspiracy charged, andthis investigation has resulted in the indictment of Gen. Bernardo Reyesand others and the seizure of a number of officers and men and horses andaccoutrements assembled upon the soil of Texas for the purpose of invadingMexico. Similar proceedings had been taken during the insurrection againstthe Diaz Government resulting in the indictments and prosecution of personsfound to be engaged in violating the neutrality laws of the United Statesin aid of that uprising. 

The record of this Government in respect of the recognition of constitutedauthority 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 pastto emphasize most strongly the importance that should be attributed to theconsummation of the conventions between the Republics of Nicaragua and ofHonduras and this country, and I again earnestly recommend that thenecessary advice and consent of the Senate be accorded to these treaties, which will make it possible for these Central American Republics to enterupon an era of genuine economic national development. The Government ofNicaragua which has already taken favorable action on the convention, hasfound it necessary, pending the exchange of final ratifications, to enterinto negotiations with American bankers for the purpose of securing atemporary loan to relieve the present financial tension. III connectionwith this temporary loan and in the hope of consummating, through theultimate operation of the convention, a complete and lasting economicregeneration, the Government of Nicaragua has also decided to engage anAmerican citizen as collector general of customs. The claims commission onwhich the services of two American citizens have been sought, and the workof the American financial adviser should accomplish a lasting good ofinestimable benefit to the prosperity, commerce, and peace of the Republic. In considering the ratification of the conventions with Nicaragua andHonduras, there rests with the United States the heavy responsibility ofthe fact that their rejection here might destroy the progress made andconsign the Republics concerned to still deeper submergence in bankruptcy, revolution, and national jeopardy. PANAMA. 

Our relations with the Republic of Panama, peculiarly important, due tomutual obligations and the vast interests created by the canal, havecontinued in the usual friendly manner, and we have been glad to makeappropriate expression of our attitude of sympathetic interest in theendeavors of our neighbor in undertaking the development of the richresources of the country. With reference to the internal political affairsof the Republic, our obvious concern is in the maintenance of public peaceand constitutional order, and the fostering of the general interestscreated by the actual relations of the two countries, without themanifestation of any preference for the success of either of the politicalparties. 

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, hasduring the past year enlarged its practical work as an internationalorganization, and continues to prove its usefulness as an agency for themutual development of commerce, better acquaintance, and closer intercoursebetween 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 conclusionof two important international loans, one for the construction of theHukuang railways, the other for carrying out of the currency reform towhich 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 amongBritish, French, and German financial groups whereby they proposed to lendthe Chinese Government funds for the construction of railways in theProvinces of Hunan and Hupeh, reserving for their nationals the privilegeof engineering the construction of the lines and of furnishing thematerials required for the work. After negotiations with the Governmentsand groups concerned an agreement was reached whereby American, British, French, and German nationals should participate upon equal terms in thisimportant and useful undertaking. Thereupon the financial groups, supportedby their respective Governments, began negotiations with the ChineseGovernment which terminated in a loan to China Of $30, 000, 000, with theprivilege of increasing the amount to $50, 000, 000. The cooperativeconstruction of these trunk lines should be of immense advantage, materially and otherwise, to China and should greatly facilitate thedevelopment of the bountiful resources of the Empire. On the other hand, alarge portion of these funds is to be expended for materials, Americanproducts having equal preference with those of the other three lendingnations, and as the contract provides for branches and extensionssubsequently to be built on the same terms the opportunities for Americanmaterials will reach considerable proportions. 

Knowing the interest of the United States in the reform of Chinesecurrency, the Chinese Government, in the autumn of 1910 sought theassistance of the American Government to procure funds with which toaccomplish that all-important reform. In the course of the subsequentnegotiations there was combined with the proposed currency loan one forcertain industrial developments in Manchuria, the two loans aggregating thesum Of $50, 000, 000. While this was originally to be solely an Americanenterprise, the American Government, consistently with its desire to securea sympathetic and practical cooperation of the great powers towardmaintaining the principle of equality of opportunity and the administrativeintegrity of China, urged the Chinese Government to admit to participationin the currency loan the associates of the American group in the Hukuangloan. While of immense importance in itself, the reform contemplated inmaking this loan is but preliminary to other and more comprehensive fiscalreforms which will be of incalculable benefit to China and foreigninterests alike, since they will strengthen the Chinese Empire and promotethe rapid development of international trade. 

NEUTRAL FINANCIAL ADVISER. 

When these negotiations were begun, it was understood that a financialadviser was to be employed by China in connection with the reform, and inorder that absolute equality in all respects among the lending nationsmight be scrupulously observed, the American Government proposed thenomination of a neutral adviser, which was agreed to by China and the otherGovernments concerned. On September 28, 1911, Dr. Vissering, president ofthe Dutch Java Bank and a financier of wide experience in the Orient, wasrecommended to the Chinese Government for the post of monetary adviser. 

Especially important at the present, when the ancient Chinese Empire isshaken by civil war incidental to its awakening to the many influences andactivities of modernization, are the cooperative policy of goodunderstanding which has been fostered by the international projectsreferred to above and the general sympathy of view among all the Powersinterested in the Far East. While safeguarding the interests of ournationals, this Government is using its best efforts in continuance of itstraditional policy of sympathy and friendship toward the Chinese Empire andits people, with the confident hope for their economic and administrativedevelopment, and with the constant disposition to contribute to theirwelfare in all proper ways consistent with an attitude of strictimpartiality 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 haveterminated on July 17, 1912. Japan's general treaties with the otherpowers, however, terminated in 1911, and the Japanese Government expressedan earnest desire to conduct the negotiations for a new treaty with theUnited 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, andthe right of Americans to hold real estate in Japan. The United Statesconsented to waive all technicalities and to enter at once uponnegotiations for a new treaty on the understanding that there should be acontinuance throughout the, life of the treaty of the same effectivemeasures for the restriction of immigration of laborers to Americanterritory which had been in operation with entire satisfaction to bothGovernments since 1908. The Japanese Government accepted this basis ofnegotiation, and a new treaty was quickly concluded, resulting in a highlysatisfactory settlement of the other questions referred to. 

A satisfactory adjustment has also been effected of the questions growingout of the annexation of Korea by Japan. 

The recent visit of Admiral Count Togo to the United States as the Nation'sguest afforded a welcome opportunity to demonstrate the friendly feeling sohappily existing between the two countries. SIAM. 

There has been a change of sovereigns in Siam and the American minister atBangkok was accredited in a special capacity to represent the United Statesat 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 beenat times considerable political unrest. The Moroccan question, which forsome months was the cause of great anxiety, happily appears to have reacheda stage at which it need no longer be regarded with concern. The OttomanEmpire was occupied for a period by strife in Albania and is now at warwith Italy. In Greece and the Balkan countries the disquietingpotentialities of this situation have been more or less felt. Persia hasbeen the scene of a long internal struggle. These conditions have been thecause of uneasiness in European diplomacy, but thus far without directpolitical concern to the United States. 

In the war which unhappily exists between Italy and Turkey this Governmenthas no direct political interest, and I took occasion at the suitable timeto issue a proclamation of neutrality in that conflict. At the same timeall necessary steps have been taken to safeguard the personal interests ofAmerican 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 tocommerce, the United States has gained markedly in its commercial standingwith certain of the nations of the Near East. Turkey, especially, isbeginning to come into closer relations with the United States through thenew interest of American manufacturers and exporters in the possibilitiesof those regions, and it is hoped that foundations are being laid for alarge and mutually beneficial exchange of commodities between the twocountries. This new interest of Turkey in American goods is indicated bythe fact that a party of prominent merchants from a large city in Turkeyrecently visited the United States to study conditions of manufacture andexport here, and to get into personal touch with American merchants, with aview to cooperating more intelligently in opening up the markets of Turkeyand the adjacent countries to our manufactures. Another indication of thisnew interest of America in the commerce of the Near East is the recentvisit of a large party of American merchants and manufacturers to centraland eastern Europe, where they were entertained by prominent officials andorganizations of the large cities, and new bonds of friendship andunderstanding were established which can not but lead to closer and greatercommercial interchange. 

CORONATION OF KING GEORGE V. 

The 22d of June of the present year marked the coronation of His BritannicMajesty King George V. In honor of this auspicious occasion I sent aspecial embassy to London. The courteous and cordial welcome extended tothis Government's representatives by His Majesty and the people of GreatBritain has further emphasized the strong bonds of friendship happilyexisting 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 andthe United States to settle all of their outstanding differences a numberof treaties have been entered into between the two countries in recentyears, by which nearly all of the unsettled questions between them of anyimportance have either been adjusted by agreement or arrangements made fortheir settlement by arbitration. A number of the unsettled questionsreferred to consist of pecuniary claims presented by each country againstthe other, and in order that as many of these claims as possible should besettled by arbitration a special agreement for that purpose was enteredinto between the two Governments on the 18th day of August, 1910, inaccordance with Article 11 of the general arbitration treaty with GreatBritain of April 4, 19o8. Pursuant to the provisions of this specialagreement a schedule of claims has already been agreed upon, and thespecial agreement, together with this schedule, received the approval ofthe Senate when submitted to it for that purpose at the last session ofCongress. Negotiations between the two Governments for the preparation ofan additional schedule of claims are already well advanced, and it is myintention to submit such schedule as soon as it is agreed upon to theSenate for its approval, in order that the arbitration proceedings may beundertaken at an early date. In this connection the attention of Congressis particularly called to the necessity for an appropriationto 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 Secretaryof State and the joint Committee on the Library entered into a contractwith the sculptor, Albert Jaegers, for the execution of a bronze replica ofthe statue of Gen. Von Steuben erected in Washington, for presentation toHis Majesty the German Emperor and the German nation in recognition of thegift of the statue of Frederick the Great made by the Emperor to the peopleof the United States. 

The presentation was made on September 2 last by representatives whom Icommissioned as the special mission of this Government for the purpose. 

The German Emperor has conveyed to me by telegraph, on his own behalf andthat of the German people, an expression of appreciative thanks for thisaction of Congress. RUSSIA. 

By direction of the State Department, our ambassador to Russia has recentlybeen having a series of conferences with the minister of foreign affairs ofRussia, with a view to securing a clearer understanding and construction ofthe treaty of 1832 between Russia and the United States and themodification of any existing Russian regulations which may be found tointerfere in any way with the full recognition of the rights of Americancitizens under this treaty. I believe that the Government of Russia isaddressing itself seriously to the need of changing the present practiceunder the treaty and that sufficient progress has been made to warrant thecontinuance of these conferences in the hope that there may soon be removedany justification of the complaints of treaty violation now prevalent inthis country. 

I expect that immediately after the Christmas recess I shall be able tomake a further communication to Congress on this subject. LIBERIA. 

Negotiations for the amelioration of conditions found to exist in Liberiaby the American commission, undertaken through the Department of State, have been concluded and it is only necessary for certain formalities to bearranged in securing the loan which it is hoped will place that republic ona practical financial and economic footing. 

RECOGNITION OF PORTUGUESE REPUBLIC. 

The National Constituent Assembly, regularly elected by the vote of thePortuguese people, having on June 19 last unanimously proclaimed arepublican form of government, the official recognition of the Governmentof the United States was given to the new Republic in the afternoon of thesame day. 

SPITZBERGEN ISLANDS. 

Negotiations for the betterment of conditions existing in the SpitzbergenIslands and the adjustment of conflicting claims of American citizens andNorwegian 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 establishmentof an international prize court, mentioned in my last annual message, embodying stipulations providing for an alternative procedure which wouldremove the constitutional objection to that part of The Hague conventionwhich provides that there may be an appeal to the proposed court from thedecisions of national courts, has received the signature of the governmentsparties to the original convention and has been ratified by the Governmentof the United States, together with the prize court convention. 

The deposit of the ratifications with the Government of the Netherlandsawaits action by the powers on the declaration, signed at London onFebruary 26, 1909 of the rules of international law to be recognized withinthe meaning of article 7 of The Hague convention for the establishment ofan International Prize Court. 

FUR-SEAL TREATY. 

The fur-seal controversy, which for nearly twenty-five years has been thesource of serious friction between the United States and the powersbordering upon the north Pacific Ocean, whose subjects have been permittedto engage in pelagic sealing against the fur-seal herds having theirbreeding grounds within the jurisdiction of the United States, has at lastbeen satisfactorily adjusted by the conclusion of the north Pacific sealingconvention entered into between the United States, Great Britain, Japan, and Russia on the 7th of July last. This convention is a conservationmeasure of very great importance, and if it is carried out in the spirit ofreciprocal concession and advantage upon which it is based, there is everyreason to believe that not only will it result in preserving the fur-sealherds of the north Pacific Ocean and restoring them to their former valuefor the purposes of commerce, but also that it will afford a permanentlysatisfactory settlement of a question the only other solution of whichseemed to be the total destruction of the fur seals. In another aspect, also, this convention is of importance in that it furnishes an illustrationof the feasibility of securing a general international game law for theprotection of other mammals of the sea, the preservation of which is ofimportance to all the nations of the world. 

LEGISLATION NECESSARY. 

The attention of Congress is especially called to the necessity forlegislation on the part of the United States for the purpose of fulfillingthe obligations assumed under this convention, to which the Senate gave itsadvice and consent on the 24th day of July last. 

PROTECTION OF INDUSTRIAL PROPERTY UNION. 

The conference of the International Union for the Protection of IndustrialProperty, which, under the authority of Congress, convened at Washington onMay 16, 1911, closed its labors on June 2, 1911, by the signature of threeacts, as follows:

(I) A convention revising the Paris convention of March 20, 1883, for theprotection of industrial property, as modified by the additional act signedat 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 additionalact 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 ofmerchandise. 

The United States is a signatory of the first convention only, and thiswill 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 ofState in regard to certain needful legislation for the control of ourinterstate and foreign traffic in opium and other menacing drugs, I quotedfrom my annual message of December 7, 1909, in which I announced that theresults of the International Opium Commission held at Shanghai in February, 1909, at the invitation of the United States, had been laid before thisGovernment; that the report of that commission showed that China was makingremarkable progress and admirable efforts toward the eradication of theopium evil; that the interested governments had not permitted theircommercial interests to prevent their cooperation in this reform; and, as aresult of collateral investigations of the opium question in this country, I recommended that the manufacture, sale, and use of opium in the UnitedStates should be more rigorously controlled by legislation. 

Prior to that time and in continuation of the policy of this Government tosecure the cooperation of the interested nations, the United Statesproposed an international opium conference with full powers for the purposeof clothing with the force of international law the resolutions adopted bythe above-mentioned commission, together with their essential corollaries. The other powers concerned cordially responded to the proposal of thisGovernment, and, I am glad to be able to announce, representatives of allthe powers assembled in conference at The Hague on the first of thismonth. 

Since the passage of the opium-exclusion act, more than twenty States havebeen animated to modify their pharmacy laws and bring them in accord withthe spirit of that act, thus stamping out, to a measure, the intrastatetraffic in opium and other habit-forming drugs. But, although I have urgedon the Congress the passage of certain measures for Federal control of theinterstate and foreign traffic in these drugs, no action has yet beentaken. In view of the fact that there is now sitting at The Hague soimportant a conference, which has under review the municipal laws of thedifferent nations for the mitigation of their opium and other allied evils, a conference which will certainly deal with the international aspects ofthese evils, it seems to me most essential that the Congress should takeimmediate action on the anti-narcotic legislation to which I have alreadycalled attention by a special message. 

BUENOS AIRES CONVENTIONS. 

The four important conventions signed at the Fourth Pan American Conferenceat Buenos Aires, providing for the regulation of trademarks, patents, andcopyrights, and for the arbitration of pecuniary claims, have, with theadvice and consent of the Senate, been ratified on the part of the UnitedStates and the ratifications have been deposited with the Government of theArgentine Republic in accordance with the requirements of the conventions. I am not advised that similar action has been taken by any other of thesignatory governments. 

INTERNATIONAL ARRANGEMENT TO SUPPRESS OBSCENE PUBLICATIONS. 

One of the notable advances in international morality accomplished inrecent years was an arrangement entered into on April 13th of the presentyear between the United States and other powers for the repression of thecirculation of obscene publications. 

FOREIGN TRADE RELATIONS OF THE UNITED STATES. 

In my last annual message I referred to the tariff negotiations of theDepartment of State with foreign countries in connection with theapplication, by a series of proclamations, of the minimum tariff of theUnited States to importations from the several countries, and I statedthat, in its general operation, section 2 of the new tariff law had proveda guaranty of continued commercial peace, although there were, unfortunately, instances where foreign governments dealt arbitrarily withAmerican interests within their jurisdiction in a manner injurious andinequitable. During the past year some instances of discriminatorytreatment have been removed, but I regret to say that there remain a fewcases of differential treatment adverse to the commerce of the UnitedStates. While none of these instances now appears to amount to unduediscrimination 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 tarifftreatment that the Department of State has consistently sought to obtainfor American commerce abroad. 

While the double tariff feature of the tariff law of 1909 has been amplyjustified by the results achieved in removing former and preventing new, undue discriminations against American commerce it is believed that thetime has come for the amendment of this feature of the law in such way asto provide a graduated means of meeting varying degrees of discriminatorytreatment of American commerce in foreign countries as well as to protectthe financial interests abroad of American citizens against arbitrary andinjurious treatment on the part of foreign governments through eitherlegislative or administrative measures. 

It would seem desirable that the maximum tariff of the United States shouldembrace within its purview the free list, which is not the case at thepresent time, in order that it might have reasonable significance to thegovernments of those countries from which the importations into the UnitedStates 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 thedevelopment of American trade. It was noteworthy as marking the highestrecord of exports of American products to foreign countries, the valuationbeing in excess of $2, 000, 000, 000. These exports showed a gain over thepreceding year of more than $300, 000, 000. 

FACILITIES FOR FOREIGN TRADE FURNISHED BY JOINT ACTION OF DEPARTMENT OFSTATE AND OF COMMERCE AND LABOR. 

There is widespread appreciation expressed by the business interests of thecountry as regards the practical value of the facilities now offered by theDepartment of State and the Department of Commerce and Labor for thefurtherance of American commerce. Conferences with their officers atWashington who have an expert knowledge of trade conditions in foreigncountries and with consular officers and commercial agents of theDepartment of Commerce and Labor who, while on leave of absence, visit theprincipal industrial centers of the United States, have been found of greatvalue. These trade conferences are regarded as a particularly promisingmethod of governmental aid in foreign trade promotion. The Department ofCommerce and Labor has arranged to give publicity to the expected arrivaland the itinerary of consular officers and commercial agents while on leavein the United States, in order that trade organizations may arrange forconferences with them. 

As I have indicated, it is increasingly clear that to obtain and maintainthat equity and substantial equality of treatment essential to theflourishing foreign trade, which becomes year by year more important to theindustrial and commercial welfare of the United States, we should have aflexibility of tariff sufficient for the give and take of negotiation bythe 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 builtup an American merchant marine. This is necessary to assure favorabletransportation facilities to our great ocean-borne commerce as well as tosupplement the Navy with an adequate reserve of ships and men It would havethe economic advantage of keeping at home part of the vast sums now paidforeign shipping for carrying American goods. All the great commercialnations pay heavy subsidies to their merchant marine so that it is obviousthat without some wise aid from the Congress the United States must lagbehind 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 foreigncountries 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 inprosperity are as broad as the land. In the dissemination of usefulinformation and in the coordination of effort certain unofficialassociations have done good work toward the promotion of foreign commerce. It is cause for regret, however, that the great number of such associationsand the comparative lack of cooperation between them fails to secure anefficiency commensurate with the public interest. Through the agency of theDepartment of Commerce and Labor, and in some cases directly, theDepartment of State transmits to reputable business interests informationof commercial opportunities, supplementing the regular published consularreports. Some central organization in touch with associations and chambersof commerce throughout the country and able to keep purely Americaninterests in closer touch with different phases of commercial affairswould, I believe, be of great value. Such organization might be managed bya committee composed of a small number of those now actively carrying onthe work of some of the larger associations, and there might be added tothe committee, as members ex officio, one or two officials of theDepartment of State and one or two officials from the Department ofCommerce and Labor and representatives of the appropriate committees ofCongress. The authority and success of such an organization would evidentlybe enhanced if the Congress should see fit to prescribe its scope andorganization through legislation which would give to it some such officialstanding 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 hasbeen placed by the recent reorganization this Government would be abreastof the times in fostering the interests of its foreign trade, and the restmust 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 developedwith especial regard to the requirements of the commercial interests of thecountry. The rapid growth of our foreign trade makes it of the utmostimportance that governmental agencies through which that trade is to beaided and protected should possess a high degree of efficiency. Not onlyshould the foreign representatives be maintained upon a generous scale inso far as salaries and establishments are concerned, but the selection andadvancement of officers should be definitely and permanently regulated bylaw so that the service shall not fail to attract men of high character andability. The experience of the past few years with a partial application ofcivil-service rules to the Diplomatic and Consular Service leaves no doubtin my mind of the wisdom of a wider and more permanent extension of thoseprinciples to both branches of the foreign service. The men selected forappointment by means of the existing executive regulations have been of afar higher average of intelligence and ability than the men appointedbefore the regulations were promulgated. Moreover, the feeling that underthe existing rules there is reasonable hope for permanence of tenure duringgood behavior and for promotion for meritorious service has served to bringabout a zealous activity in the interests of the country, which neverbefore existed or could exist. It is my earnest conviction that theenactment into law of the general principles of the existing regulationscan not fail to effect further improvement in both branches of the foreignservice by providing greater inducement for young men of character andability to seek a career abroad in the service of the Government, and anincentive to those already in the service to put forth greater efforts toattain the high standards which the successful conduct of our internationalrelations and commerce requires. 

I therefore again commend to the favorable action of the Congress theenactment of a law applying to the diplomatic and consular service theprinciples embodied in section 1753 of the Revised Statutes of the UnitedStates, in the civil-service act of January 16, 1883, and the Executiveorders of June 27, 1906, and of November 26, 1909. In its consideration ofthis important subject I desire to recall to the attention of the Congressthe very favorable report made on the Lowden bill for the improvement ofthe foreign service by the Foreign Affairs Committee of the House ofRepresentatives. Available statistics show the strictness with which themerit system has been applied to the foreign service during recent yearsand the absolute nonpartisan selection of consuls and diplomatic-servicesecretaries who, indeed, far from being selected with any view to politicalconsideration, have actually been chosen to a disproportionate extent fromStates which would have been unrepresented in the foreign service under thesystem which it is to be hoped is now permanently obsolete. Somelegislation for the perpetuation of the present system of examinations andpromotions upon merit and efficiency would be of greatest value to ourcommercial and international interests. 

PART III. 

THE WHITE HOUSE, December 20, 1911. To the Senate and House ofRepresentatives:

In my annual message to Congress, December, 1909, I stated that undersection 2 of the act of August 5, 1909, I had appointed a Tariff Board ofthree members to cooperate with the State Department in the administrationof the maximum and minimum clause of that act, to make a glossary orencyclopedia of the existing tariff so as to render its terms intelligibleto the ordinary reader, and then to investigate industrial conditions andcosts of production at home and abroad with a view to determining to whatextent existing tariff rates actually exemplify the protective principle, viz. , that duties should be made adequate, and only adequate, to equalizethe difference in cost of production at home and abroad. 

I further stated that I believed these investigations would be of greatvalue as a basis for accurate legislation, and that I should from time totime recommend to Congress the revision of certain schedules in accordancewith the findings of the Board. 

In the last session of the Sixty-first Congress a bill creating a permanentTariff Board of five members, of whom not more than three should be of thesame political party, passed each House, but failed of enactment because ofslight differences on which agreement was not reached before adjournment. An appropriation act provided that the permanent Tariff Board, if createdby 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 thisbill for a permanent Tariff Board, I appointed in March, 1911, a board offive, adding two members of such party affiliation as would have fulfilledthe statutory requirement, and directed them to make a report to me onSchedule K of the tariff act in December of this year. 

In my message of August 17, 1911, accompanying the veto of the wool bill, Isaid that, in my judgment, Schedule K should be revised and the ratesreduced. My veto was based on the ground that, since the Tariff Board wouldmake, in December, a detailed report on wool and wool manufactures, withspecial reference to the relation of the existing rates of duties torelative costs here and abroad, public policy and a fair regard to theinterests of the producers and the manufacturers on the one hand and of theconsumers on the other demanded that legislation should not be hastilyenacted in the absence of such information; that I was not myself possessedat that time of adequate knowledge of the facts to determine whether or notthe proposed act was in accord with my pledge to support a fair andreasonable protective policy; that such legislation might prove onlytemporary and inflict upon a great industry the evils of continueduncertainty. 

I now herewith submit a report of the Tariff Board on Schedule K. The boardis unanimous in its findings. On the basis of these findings I nowrecommend that the Congress proceed to a consideration of this schedulewith a view to its revision and a general reduction of its rates. 

The report shows that the present method of assessing the duty on rawWool--this is, by a specific rate on the grease pound (i. E. , unscoured)--operates to exclude wools of high shrinkage in scouring but fine qualityfrom the American market and thereby lessens the range of wools availableto the domestic manufacturer; that the duty on scoured wool Of 33 cents perpound is prohibitory and operates to exclude the importation of clean, low-priced foreign wools of inferior grades, which are neverthelessvaluable material for manufacturing, and which can not be imported in thegrease because of their heavy shrinkage. Such wools, if imported, might beused to displace the cheap substitutes now in use. 

To make the preceding paragraph a little plainer, take the instance of ahundred pounds of first-class wool imported under the present duty, whichis 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 woolof this hundred pounds after scouring. If the wool shrinks 80 per cent, assome wools do, then the duty in such a case would amount to $11 $11 on 20pounds of scoured wool. This, of course, would be prohibitory. If the woolshrinks only 50 per cent, it would be $11 on 50 pounds of wool, and this isnear to the average of the great bulk of wools that are imported fromAustralia, which is the principal source of our imported wool. 

These discriminations could be overcome by assessing a duty in ad valoremterms, but this method is open to the objection, first, that it increasesadministrative difficulties and tends to decrease revenue throughundervaluation; and, second, that as prices advance, the ad valorem rateincreases the duty per pound at the time when the consumer most needsrelief and the producer can best stand competition; while if prices declinethe duty is decreased at the time when the consumer is least burdened bythe price and the producer most needs protection. 

Another method of meeting the difficulty of taxing the grease pound is toassess a specific duty on grease wool in terms of its scoured content. Thisobviates the chief evil of the present system, namely, the discriminationdue to different shrinkages, and thereby tends greatly to equalize theduty. The board reports that this method is feasible in practice and couldbe administered without great expense. The scoured content of the wool isthe basis on which users of wool make their calculations, and a duty ofthis kind would fit the usages of the trade. One effect of this method ofassessment would be that, regardless of the rate of duty, there would bean increase in the supply and variety of wool by making available to theAmerican market wools of both low and fine quality now excluded. 

The report shows in detail the difficulties involved in attempting to statein categorical terms the cost of wool production and the great differencesin cost as between different regions and different types of wool. It isfound, however, that, taking all varieties in account, the average cost ofproduction for the whole American clip is higher than the cost in the chiefcompeting country by an amount somewhat less than the present duty. 

The report shows that the duties on wools, wool wastes, and shoddy, whichare adjusted to the rate Of 33 cents on scoured wool are prohibitory in thesame measure that the duty on scoured wool is prohibitory. In general, theyare assessed at rates as high as, or higher than, the duties paid on theclean content of wools actually imported. They should be reduced and soadjusted to the rate on wool as to bear their proper proportion to the realrate levied on the actual wool imports. 

The duties on many classes of wool manufacture are prohibitory and greatlyin 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 avery 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 lowervalues. On cheap and medium grade cloths, the existing rates frequently runto 150 per cent and on some cheap goods to over 200 per cent. This islargely due to that part of the duty which is levied ostensibly tocompensate the manufacturer for the enhanced cost of his raw material dueto the duty on wool. As a matter of fact, this compensatory duty, fornumerous classes of goods, is much in excess of the amount needed forstrict compensation. 

On the other hand, the findings show that the duties which run to such highad valorem equivalents are prohibitory, since the goods are not imported, but that the prices of domestic fabrics are not raised by the full amountof duty. On a set of 1-yard samples of 16 English fabrics, which arecompletely excluded by the present tariff rates, it was found that thetotal foreign value was $41. 84; the duties which would have been assessedhad these fabrics been imported, $76. 90; the foreign value plus the amountof 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 67per cent. 

Although these duties do not increase prices of domestic goods by anythinglike their full amount, it is none the less true that such prohibitiveduties eliminate the possibility of foreign competition, even in time ofscarcity; that they form a temptation to monopoly and conspiracies tocontrol domestic prices; that they are much in excess of the difference incost of production here and abroad, and that they should be reduced to apoint which accords with this principle. 

The findings of the board show that in this industry the actualmanufacturing cost, aside from the question of the price of materials, ismuch higher in this country than it is abroad; that in the making of yarnand cloth the domestic woolen or worsted manufacturer has in general noadvantage in the form of superior machinery or more efficient labor tooffset the higher wages paid in this country The findings show that thecost of turning wool into yarn in this country is about double that in theleading competing country, and that the cost of turning yarn into cloth issomewhat more than double. Under the protective policy a great industry, involving the welfare of hundreds of thousands of people, has beenestablished despite these handicaps. 

In recommending revision and reduction, I therefore urge that action betaken with these facts in mind, to the end that an important andestablished industry may not be jeopardized. 

The Tariff Board reports that no equitable method has been found to, levypurely specific duties on woolen and worsted fabrics and that, exceptingfor 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 suchfabrics can be made to work fairly and effectively. Any single rate whichis high enough to equalize the difference in manufacturing cost at home andabroad on highly finished goods involving such labor would be prohibitoryon cheaper goods, in which the labor cost is a smaller proportion of thetotal value. Conversely, a rate only adequate to equalize this differenceon cheaper goods would remove protection from the fine-goods manufacture, the increase in which has been one of the striking features of the trade'sdevelopment in recent years. I therefore recommend that in any revision theimportance of a graduated scale of ad valorem duties on cloths be carefullyconsidered and applied. 

I venture to say that no legislative body has ever had presented to it amore complete and exhaustive report than this on so difficult andcomplicated a subject as the relative costs of wool and woolens the worldover. It is a monument to the thoroughness, industry, impartiality, andaccuracy of the men engaged in its making. They were chosen from bothpolitical parties but have allowed no partisan spirit to prompt or controltheir inquiries. They are unanimous in their findings. I feel sure thatafter the report has been printed and studied the value of such acompendium of exact knowledge in respect to this schedule of the tariffwill convince all of the wisdom of making such a board permanent in orderthat it may treat each schedule of the tariff as it has treated this, andthen keep its bureau of information up to date with current changes in theeconomic 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 dutymay be fairly determined in the light of adequate knowledge in accord withthe economic policy to be followed. This is what the present report does. 

The findings of fact by the board show ample reason for the revisiondownward of Schedule K, in accord with the protective principle, andpresent the data as to relative costs and prices from which may bedetermined what rates will fairly equalize the difference in productioncosts. I recommend that such revision be proceeded with at once. 

PART IV. 

THE WHITE HOUSE, December 21, 1911. To the Senate and House ofRepresentatives:

The financial condition of the Government, as shown at the close of thelast fiscal year, June 30, 1911, was very satisfactory. The ordinaryreceipts into the general fund, excluding postal revenues, amounted to$701, 372, 374. 99, and the disbursements from the general fund for currentexpenses and capital outlays, excluding postal and Panama Canaldisbursements, 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 paymentsmade for the postal service from the postal revenues amounted to$237, 660, 705. 48, which left a surplus of postal receipts over disbursementsOf $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 debtamounting to $1, 303, 984, 937. 69. 

The actual disbursements, exclusive of those for the Panama Canal and forthe 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 ofthe Panama Canal and the postal service disbursements, were$659, 705, 391. 08, making a decrease Of $5, 567, 393. 19 in yearly expendituresin the year 1911 under that of 1910. For the year ending June 30, 1912, theestimated receipts, exclusive of the postal revenues, are $666, 000, 000, while the total estimates, exclusive of those for the Panama Canal and thepostal expenditures payable from the postal revenues, amount to$645, 842, 799. 34. This is a decrease in the 1912 estimates from that of the1911 estimates of $1, 534, 367-22. 

For the year ending June 30, 1913, the estimated receipts, exclusive of thepostal revenues, are $667, 000, 000, while the total estimatedappropriations, exclusive of the Panama Canal and postal disbursementspayable from postal revenues, will amount to $637, 920, 803. 35. This is adecrease 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 thatdepartment, the normal increase in the Post Office and the extension of theservice, will increase the outlay to the sum Of $260, 938, 463; but as thedepartment was self-sustaining this year the Postmaster General is assuredthat next year the receipts will at least equal the expenditures, andprobably exceed them by more than the surplus of this year. It is fair andequitable, therefore, in determining the economy with which the Governmenthas been run, to exclude the transactions of a department like the PostOffice Department, which relies for its support upon its receipts. Incalculations heretofore made for comparison of economy in each year, it hasbeen the proper custom only to include in the statement the deficit in thePost Office Department which was paid out of the Treasury. 

A calculation of the actual increase in the expenses of Government arisingfrom the increase in the population and the general expansion ofgovernmental functions, except those of the Post Office, for a number ofyears shows a normal increase of about 4 per cent a year. By directing theexercise of great care to keep down the expenses and the estimates we havesucceeded 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 otherGovernment by the sale of the Panama Canal 3 per cent bonds. These bondsdid not give their owners the privilege of using them as a basis forbank-note circulation, nor was there any other privilege extended to themwhich would affect their general market value. Their sale, therefore, measured the credit of the Government. The premium which was realized uponthe 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 keptsteadily up. Provision is made for the elimination of 134 positions duringthe coming year. Two hundred and sixty-seven statutory positions wereeliminated during the last year in the office of the Treasury inWashington, and 141 positions in the year 1910, making an elimination Of542 statutory positions since March 4, 1909; and this has been done withoutthe discharge of anybody, because the normal resignations and deaths havebeen equal to the elimination of the places, a system of transfers havingtaken care of the persons whose positions were dropped out. In the fieldservice if the department, too, 1, 259 positions have been eliminated downto the present time, making a total net reduction of all Treasury positionsto the number of 1, 801. Meantime the efficiency of the work of thedepartment has increased. 

MONETARY REFORM. 

A matter of first importance that will come before Congress for action atthis session is monetary reform. The Congress has itself arranged an earlyintroduction of this great question through the report of its MonetaryCommission. This commission was appointed to recommend a solution of thebanking and currency problems so long confronting the Nation and to furnishthe facts and data necessary to enable the Congress to take action. Thecommission was appointed when an impressive and urgent popular demand forlegislative relief suddenly arose out of the distressing situation of thepeople caused by the deplorable panic of 1907. The Congress decided thatwhile it could not give immediately the relief required, it would provide acommission to furnish the means for prompt action at a later date. 

In order to do its work with thoroughness and precision this commission hastaken some time to make its report. The country is undoubtedly hoping foras prompt action on the report as the convenience of the Congress canpermit. The recognition of the gross imperfections and marked inadequacy ofour banking and currency system even in our most quiet financial periods isof long standing; and later there has matured a recognition of the factthat our system is responsible for the extraordinary devastation, waste, and business paralysis of our recurring periods of panic. Though themembers of the Monetary Commission have for a considerable time beenworking in the open, and while large numbers of the people have been openlyworking with them, and while the press has largely noted and discussed thiswork as it has proceeded, so that the report of the commission promises torepresent a national movement, the details of the report are still beingconsidered. I can not, therefore, do much more at this time than commendthe immense importance of monetary reform, urge prompt consideration andaction when the commission's report is received, and express mysatisfaction that the plan to be proposed promises to embrace main featuresthat, having met the approval of a great preponderance of the practical andprofessional opinion of the country, are likely to meet equal approval inCongress. 

It is exceedingly fortunate that the wise and undisputed policy ofmaintaining unchanged the main features of our banking system rendered itat once impossible to introduce a central bank; for a central bank wouldcertainly have been resisted, and a plan into which it could have beenintroduced would probably have been defeated. But as a central bank couldnot be a part of the only plan discussed or considered, that troublesomequestion is eliminated. And ingenious and novel as the proposed NationalReserve Association appears, it simply is a logical outgrowth of what isbest in our present system, and is, in fact, the fulfillment of thatsystem. 

Exactly how the management of that association should be organized is aquestion still open. It seems to be desirable that the banks which wouldown the association should in the main manage it, It will be an agency ofthe banks to act for them, and they can be trusted better than anybody elsechiefly to conduct it. It is mainly bankers' work. But there must be someform of Government supervision and ultimate control, and I favor areasonable representation of the Government in the management. I entertainno fear of the introduction of politics or of any undesirable influencesfrom a properly measured Government representation. 

I trust that all banks of the country possessing the requisite standardswill be placed upon a footing of perfect equality of opportunity. Both theNational system and the State system should be fairly recognized, leavingthem eventually to coalesce if that shall prove to be their tendency. Butsuch evolution can not develop impartially if the banks of one system aregiven or permitted any advantages of opportunity over those of the othersystem. And I trust also that the new legislation will carefully andcompletely protect and assure the individuality and the independence ofeach bank, to the end that any tendency there may ever be toward aconsolidation of the money or banking power of the Nation shall bedefeated. 

It will always be possible, of course, to correct any features of the newlaw which may in practice prove to be unwise; so that while this law issure to be enacted under conditions of unusual knowledge and authority, italso will include, it is well to remember, the possibility of futureamendment. 

With the present prospects of this long-awaited reform encouraging us, itwould be singularly unfortunate if this monetary question should by anychance become a party issue. And I sincerely hope it will not. Theexceeding amount of consideration it has received from the people of theNation has been wholly nonpartisan; and the Congress set its nonpartisanseal upon it when the Monetary Commission was appointed. In commending thequestion to the favorable consideration of Congress, I speak for, and inthe spirit of, the great number of my fellow citizens who without anythought of party or partisanship feel with remarkable earnestness that thisreform 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 increasethe efficiency and decrease the expense of the Army. It contains fourprincipal features: First, a consolidation of the General Staff with theAdjutant General's and the Inspector General's Departments; second, aconsolidation of the Quartermaster's Department with the Subsistence andthe Pay Departments; third, the creation of an Army Service Corps; andfourth, an extension of the enlistment period from three to five years. 

With the establishment of an Army Service Corps, as proposed in the bill, Iam thoroughly in accord and am convinced that the establishment of such acorps will result in a material economy and a very great increase ofefficiency in the Army. It has repeatedly been recommended by me and mypredecessors. I also believe that a consolidation of the Staff Corps can bemade with a resulting increase in efficiency and economy, but not along thelines provided in the bill under consideration. 

I am opposed to any plan the result of which would be to break up orinterfere with the essential principles of the detail system in the StaffCorps established by the act of February 2, 1901, and I am opposed to anyplan the result of which would be to give to the officer selected as Chiefof Staff or to any other member of the General Staff Corps greaterpermanency of office than he now has. Under the existing law neither theChief. Of Staff nor any other member of the General Staff Corps can remainin office for a period of more than four years, and there must be aninterval of two years between successive tours of duty. 

The bill referred to provides that certain persons shall become permanentmembers of the General Staff Corps, and that certain others are subject tore-detail without an interval of two years. Such provision is fraught withdanger to the welfare of the Army, and would practically nullify the mainpurpose of the law creating the [missing text]. 

In making the consolidations no reduction should be made in the totalnumber of officers of the Army, of whom there are now too few to performthe duties imposed by law. I have in the past recommended an increase inthe number of officers by 600 in order to provide sufficient officers toperform all classes of staff duty and to reduce the number of line officersdetached from their commands. Congress at the last session increased thetotal number of officers by 200, but this is not enough. Promotion in theline of the Army is too slow. Officers do not attain command rank at an ageearly enough properly to exercise it. It would be a mistake further toretard this already slow promotion by throwing back into the line of theArm 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 proposedincrease in the term of enlistment from three to five ears I believe itwould be better to enlist men for six years, release them at the end ofthree years from active service, and put them in reserve for the remainingthree years. Reenlistments should be largely confined to thenoncommissioned officers and other enlisted men in the skilled grades. Thisplan by the payment of a comparatively small compensation during the threeyears of reserve, would keep a large body of men at the call of theGovernment, trained and ready for [missing text]. 

The Army of the United States is in good condition. It showed itself ableto meet an emergency in the successful mobilization of an army division offrom 15, 000 to 20, 000 men, which took place along the border of Mexicoduring the recent disturbances in that country. The marvelous freedom fromthe ordinary camp diseases of typhoid fever and measles is referred to inthe report of the Secretary of War and shows such an effectiveness in thesanitary regulations and treatment of the Medical Corps, and in thediscipline 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 appropriatefor a memorial amphitheater at Arlington, Va. , the funds required toconstruct it upon the plans already approved. 

THE PANAMA CANAL. 

The very satisfactory progress made on the Panama Canal last year hascontinued, and there is every reason to believe that the canalwill be completed as early as the 1st of July, 1913, unless somethingunforeseen occurs. This is about 18 months before the time promised by theengineers. 

We are now near enough the completion of the canal to make it imperativelynecessary that legislation should be enacted to fix the method by which thecanal shall be maintained and controlled and the zone governed. The fact isthat to-day there is no statutory law by authority of which the Presidentis maintaining the government of the zone. Such authority was given in anamendment to the Spooner Act, which expired by the terms of its ownlimitation some years ago. Since that time the government has continued, under the advice of the Attorney General that in the absence of action byCongress, there is necessarily an implied authority on the part of theExecutive to maintain a government in a territory in which he has to seethat the laws are executed. The fact that we have been able thus to getalong during the important days of construction without legislationexpressly formulating the government of the zone, or delegating thecreation of it to the President, is not a reason for supposing that we maycontinue the same kind of a government after the construction is finished. The implied authority of the President to maintain a civil government inthe zone may be derived from the mandatory direction given him in theoriginal Spooner Act, by which he was commanded to build the canal; butcertainly, now that the canal is about to be completed and to be put undera permanent management, there ought to be specific statutory authority forits regulation and control and for the government of the zone, which wehold for the chief and main purpose of operating the canal. 

I fully concur with the Secretary of War that the problem is simply themanagement of a great public work, and not the government of a localrepublic; that every provision must be directed toward the successfulmaintenance of the canal as an avenue of commerce, and that all provisionsfor the government of those who live within the zone should be subordinateto the main purpose. 

The zone is 40 miles long and 10 miles wide. Now, it has a population Of50, 000 or 60, 000, but as soon as the work of construction is completed, thetowns which make up this population will be deserted, and onlycomparatively few natives will continue their residence there. The controlof them ought to approximate a military government. One judge and twojustices of the peace will be sufficient to attend to all the judicial andlitigated business there is. With a few fundamental laws of Congress, thezone should be governed by the orders of the President, issued through theWar Department, as it is today. Provisions can be made for the guarantiesof life, liberty, and property, but beyond those, the government should bethat of a military reservation, managed in connection with this greathighway of trade. 

FURNISHING SUPPLIES AND REPAIRS. 

In my last annual message I discussed at length the reasons for theGovernment's assuming the task of furnishing to all ships that use thecanal, whether our own naval vessels or others, the supplies of coal andoil and other necessities with which they must be replenished either beforeor after passing through the canal, together with the dock facilities andrepairs of every character. This it is thought wise to do through theGovernment, because the Government must establish for itself, for its ownnaval vessels, large depots and dry docks and warehouses, and these mayeasily be enlarged so as to secure to the world public using the canalreasonable prices and a certainty that there will be no discriminationbetween those who wish to avail themselves of such facilities. TOLLS. 

I renew my recommendation with respect to the tolls of the canal thatwithin limits, which shall seem wise to Congress, the power of fixing tollsbe given to the President. In order to arrive at a proper conclusion, theremust be some experimenting, and this can not be done if Congress does notdelegate 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 fromthe payment of tolls any part of our shipping that Congress deems wise. Weown the canal. It was our money that built it. We have the right to chargetolls for its use. Those tolls must be the same to everyone; but when weare dealing with our own ships, the practice of many Governments ofsubsidizing their own merchant vessels is so well established in generalthat a subsidy equal to the tolls, an equivalent remission of tolls, cannot be held to be a discrimination in the use of the canal. The practice inthe Suez Canal makes this clear. The experiment in tolls to be made by thePresident would doubtless disclose how great a burden of tolls thecoastwise trade between the Atlantic and the Pacific coast could bearwithout preventing its usefulness in competition with the transcontinentalrailroads. One of the chief reasons for building the canal was to set upthis competition and to bring the two shores closer together as a practicaltrade problem. It may be that the tolls will have to be wholly remitted. Ido not think this is the best principle, because I believe that the cost ofsuch a Government work as the Panama Canal ought to be imposed graduallybut certainly upon the trade which it creates and makes possible. So far aswe can, consistent with the development of the world's trade through thecanal, and the benefit which it was intended to secure to the east and westcoastwise trade, we ought to labor to secure from the canal tolls asufficient amount ultimately to meet the debt which we have assumed and topay the interest. 

THE PHILIPPINE ISLANDS. 

In respect to the Philippines, I urgently join in the recommendation of theSecretary of War that the act of February 6, 1905, limiting theindebtedness that may be incurred by the Philippine Government for theconstruction of public works, be increased from $5, 000, 000 to $15, 000, 000. The finances of that Government are in excellent condition. The maximum summentioned is quite low as compared with the amount of indebtedness of othergovernments with similar resources, and the success which has attended theexpenditure of the $5, 000, 000 in the useful improvements of the harbors andother places in the Islands justifies and requires additional expendituresfor like purposes. NATURALIZATION. 

I also join in the recommendation that the legislature of the PhilippineIslands be authorized to provide for the naturalization of Filipinos andothers who by the present law are treated as aliens, so as to enable themto become citizens of the Philippine Islands. 

FRIARS' LANDS. 

Pending an investigation by Congress at its last session, through one ofits committees, into the disposition of the friars' lands, SecretaryDickinson directed that the friars' lands should not be sold in excess ofthe limits fixed for the public lands until Congress should pass upon thesubject or should have concluded its investigation. This order has been anobstruction to the disposition of the lands, and I expect to direct theSecretary of War to return to the practice under the opinion of theAttorney General which will enable us to dispose of the lands much morepromptly, and to prepare a sinking fund with which to meet the $7, 000, 000of bonds issued for the purchase of the lands. I have no doubt whateverthat the Attorney General's construction was a proper one, and that it isin the interest of everyone that the land shall be promptly disposed of. The danger of creating a monopoly of ownership in lands under the statutesas construed is nothing. There are only two tracts of 60, 000 acres eachunimproved and in remote Provinces that are likely to be disposed of inbulk, and the rest of the lands are subject to the limitation that theyshall be first offered to the present tenants and lessors who hold them insmall tracts. 

RIVERS AND HARBORS. 

The estimates for the river and harbor improvements reach $32, 000, 000 forthe coming year. I wish to urge that whenever a project has been adopted byCongress as one to be completed, the more money which can be economicallyexpended in its construction in each year, the greater the ultimateeconomy. This has especial application to the improvement of theMississippi River and its large branches. It seems to me that an increasein the amount of money now being annually expended in the improvement ofthe Ohio River which has been formally adopted by Congress would be in theinterest of the public. A similar change ought to be made during thepresent Congress, in the amount to be appropriated for the Missouri River. The engineers say that the cost of the improvement of the Missouri Riverfrom Kansas City to St. Louis, in order to secure 6 feet as a permanentchannel, will reach $20, 000, 000. There have been at least threerecommendations from the Chief of Engineers that if the improvement beadopted, $2, 000, 000 should be expended upon it annually. This particularimprovement is especially entitled to the attention of Congress, because acompany 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 fortransportation in order to show what can be done in the way of affectingrates between Kansas City and St. Louis, and in order to manifest theirgood faith and confidence in respect of the improvement. I urgentlyrecommend that the appropriation for this improvement be increased from$600, 000, as recommended now in the completion of a contract, to $2, 000, 000annually, 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 theIllinois River, and thence via the Mississippi to the Gulf of Mexico, isone of national importance. In view of the work already accomplished by theSanitary District of Chicago, an agency of the State of Illinois, which hasconstructed the most difficult and costly stretch of this waterway and madeit an asset of the Nation, and in view of the fact that the people ofIllinois have authorized the expenditure Of $20, 000, 000 to carry thiswaterway 62 miles farther to Utica, I feel that it is fitting that thiswork should be supplemented by the Government, and that the expendituresrecommended by the special board of engineers on the waterway from Utica tothe mouth of the Illinois River be made upon lines which while providing awaterway for the Nation should otherwise benefit that State to the fullestextent. I recommend that the term of service of said special board ofengineers be continued, and that it be empowered to reopen the question ofthe treatment of the lower Illinois River, and to negotiate with a properlyconstituted commission representing the State of Illinois, and to agreeupon a plan for the improvement of the lower Illinois River and upon theextent to which the United States may properly cooperate with the State ofIllinois in securing the construction of a navigable waterway from Lockportto the mouth of the Illinois River in conjunction with the development ofwater 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 closeexamination the accounts of the clerks of the Federal courts; that he hasfound a good many which disclose irregularities or dishonesty; but that hehas had considerable difficulty in securing an effective prosecution orremoval of the clerks thus derelict. I am certainly not unduly prejudicedagainst the Federal courts, but the fact is that the long and confidentialrelations which grow out of the tenure for life on the part of the judgeand the practical tenure for life on the part of the clerk are notcalculated to secure the strictness of dealing by the judge with the clerkin respect to his fees and accounts which assures in the clerk's conduct afreedom from overcharges and carelessness. The relationship between thejudge and the clerk makes it ungracious for members of the bar to complainof the clerk or for department examiners to make charges against him to beheard by the court, and an order of removal of a clerk and a judgment forthe recovery of fees are in some cases reluctantly entered by the judge. For this reason I recommend an amendment to the law whereby the Presidentshall be given power to remove the clerks for cause. This provision neednot interfere with the right of the judge to appoint his clerk or to removehim. 

French spoliation awards. 

In my last message, I recommended to Congress that it authorize the paymentof the findings or judgments of the Court of Claims in the matter of theFrench spoliation cases. There has been no appropriation to pay thesejudgments since 1905. The findings and awards were obtained after a verybitter 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 ofthe Government, to be paid. 

EMPLOYERS' LIABILITY AND WORKMEN'S COMPENSATION COMMISSION. 

The limitation of the liability of the master to his servant for personalinjuries to such as are occasioned by his fault has been abandoned in mostcivilized countries and provision made whereby the employee injured in thecourse of his employment is compensated for his loss of working abilityirrespective of negligence. The principle upon which such provisionproceeds is that accidental injuries to workmen in modern industry, withits vast complexity and inherent dangers arising from complicated machineryand the use of the great forces of steam and electricity, should beregarded as risks of the industry and the loss borne in some equitableproportion by those who for their own profit engage therein. In recognitionof this the last Congress authorized the appointment of a commission toinvestigate the subject of employers' liability and workmen's compensationand to report the result of their investigations, through the President, toCongress. This commission was appointed and has been at work, holdinghearings, gathering data, and considering the subject, and it is expectedwill be able to report by the first of the year, in accordance with theprovisions of the law. It is hoped and expected that the commission willsuggest legislation which will enable us to put in the place of the presentwasteful and sometimes unjust system of employers' liability a plan ofcompensation which will afford some certain and definite relief to allemployees who are injured in the course of their employment in thoseindustries 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 unnecessarycost, in litigation, I am glad to say that the Supreme Court has takensteps to reform the present equity rules of the Federal courts, and that wemay in the near future expect a revision of them which will be a long stepin the right direction. 

The American Bar Association has recommended to Congress several billsexpediting procedure, one of which has already passed the Houseunanimously, February 6, 1911. This directs that no judgment should be setaside or reversed, or new trial granted, unless it appears to the court, after an examination of the entire cause, that the error complained of hasinjuriously affected the substantial rights of the parties, and alsoprovides for the submission of issues of fact to a jury, reservingquestions of law for subsequent argument and decision. I hope this billwill pass the Senate and become law, for it will simplify the procedure atlaw. 

Another bill 11 to amend chapter II of the judicial Code, in order toavoid errors in pleading, was presented by the same association, and one. Enlarging the jurisdiction of the Supreme Court so as to permit that courtto examine, upon a writ of error, all cases in which any right or title isclaimed under the Constitution, or any statute or treaty of the UnitedStates, whether the decision in the court below has been against the rightor title or in its favor. Both these measures are in the interest ofjustice and should be passed. 

POST OFFICE. 

At the beginning of the present administration in 1909 the postal servicewas in arrears to the extent Of $17, 479, 770. 47. It was very much thelargest deficit on record. In the brief space of two years this has beenturned into a surplus Of $220, 000, which has been accomplished withoutcurtailment of the postal facilities, as may be seen by the fact that therehave been established 3, 744 new post offices; delivery by carrier has beenadded to the service in 186 cities; 2, 516 new rural routes have beenestablished, covering 60, 000 miles; the force of postal employees has beenincreased in these two years by more than 8, 000, and their average annualsalary has had a substantial increase. 

POSTAL-SAVINGS SYSTEM. 

On January 3, 1911, postal-savings depositories were establishedexperimentally in 48 States and Territories. After three months' successfuloperation the system was extended as rapidly as feasible to the 7, 500 Postoffices of the first, second, and third classes constituting thepresidential grade. By the end of the year practically all of these willhave been designated and then the system will be extended to allfourth-class post offices doing a money-order business. 

In selecting post offices for depositories consideration was given to theefficiency of the postmasters and only those offices where the ratings weresatisfactory to the department have been designated. Withholdingdesignation from postmasters with unsatisfactory ratings has had a salutaryeffect on the service. 

The deposits have kept pace with the extension of the system. Amounting toonly $60, 652 at the end of the first month's operation in the experimentaloffices, they increased to $679, 310 by July, and now after 11 months ofoperation have reached a total of $11, 000, 000. This sum is distributedamong 2, 710 banks and protected tinder the law by bonds deposited with theTreasurer of the United States. 

Under the method adopted for the conduct of the system certificates areissued as evidence of deposits, and accounts with depositors are kept bythe post offices instead of by the department. Compared with the practicein other countries of entering deposits in pass books and keeping at thecentral office a ledger account with each depositor, the use of thecertificate has resulted in great economy of administration. 

The depositors thus far number approximately 150, 000. They include 40nationalities, native Americans largely predominating and English andItalians coming next. 

The first conversion of deposits into United States bonds bearing interestat the rate of 2. 5 per cent occurred on July 1, 1911, the amount ofdeposits exchanged being $41, 900, or a little more than 6 per cent of thetotal outstanding certificates of deposit on June 30. Of this issue, bondsto 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 parcelpost. In the estimates of appropriations needed for the maintenance of thepostal service for the ensuing fiscal year an item of $150, 000 has beeninserted to cover the preliminary expense of establishing a parcel post onrural mail routes, as well as to cover an investigation having for itsobject the final establishment of a general parcel post on all railway andsteamboat transportation routes. The department believes that after theinitial expenses of establishing the system are defrayed and the parcelpost is in full operation on the rural routes it will not only bring insufficient revenue to meet its cost, but also a surplus that can beutilized in paying the expenses of a parcel post in the City DeliveryService. 

It is hoped that Congress will authorize the immediate establishment of alimited parcel post on such rural routes as may be selected, providing forthe delivery along the routes of parcels not exceeding eleven pounds, whichis the weight limit for the international parcel post, or at the postoffice from which such route emanates, or on another route emanating fromthe same office. Such preliminary service will prepare the way for the morethorough and comprehensive inquiry contemplated in asking for theappropriation mentioned, enable the department to gain definite informationconcerning the practical operation of a general system, and at the sametime extend the benefit of the service to a class of people who, above allothers, are specially in need of it. 

The suggestion that we have a general parcel post has awakened greatopposition on the part of some who think that it will have the effect todestroy the business of the country storekeeper. Instead of doing this, Ithink the change will greatly increase business for the benefit of all. Thereduction in the cost of living it will bring about ought to make itscoming certain. 

THE NAVY DEPARTMENT. 

On the 2d of November last, I reviewed the fighting fleet of battleshipsand other vessels assembled in New York Harbor, consisting of 24battleships, 2 armored cruisers, 2 cruisers, 22 destroyers, 12 torpedoboats, 8 submarines, and other attendant vessels, making 98 vessels of allclasses, of a tonnage Of 576, 634 tons. Those who saw the fleet were struckwith its preparedness and with its high military efficiency. All Americansshould 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 nowbecoming a very important feature of foreign navies, notably the British, German, and Japanese. 

The building plan for this year contemplates two battleships and twocolliers. This is because the other and smaller vessels can be built muchmore rapidly in case of emergency than the battleships, and we certainlyought to continue the policy of two battleships a year until after thePanama Canal is finished and until in our first line and in our reserveline we can number 40 available vessels of proper armament and size. 

The reorganization of the Navy and the appointment of four aids to theSecretary have continued to demonstrate their usefulness. It would bedifficult now to administer the affairs of the Navy without the expertcounsel and advice of these aids, and I renew the recommendation which Imade last year, that the aids be recognized by statute. 

It is certain that the Navy, with its present size, should have admirals inactive command higher than rear admirals. The recognized grades in orderare: Admiral of the fleet, admiral, vice admiral, and rear admiral. Ourgreat battleship fleet is commanded by a rear admiral, with four other rearadmirals under his orders. This is not as it should be, and when questionsof precedence arise between our naval officers and those of Europeannavies, the American rear admiral, though in command of ten times the forceof a foreign vice admiral, must yield precedence to the latter. Such anabsurdity ought not to prevail, and it can be avoided by the creation oftwo 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 youngmen of the country from the interior, from farms, stores, shops, andoffices, which insures a high average of intelligence and character amongthem, and which they showed in the very wonderful improvement in disciplineand drill which only a few short weeks' presence at the naval station hadmade. 

I invite your attention to the consideration of the new system of detentionand of punishment for Army and Navy enlisted men which has obtained inGreat 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 Departmenthas given much attention to economy in administration, and has cut down anumber of unnecessary expenses and reduced its estimates except forconstruction and the increase that that involves. 

I urge upon Congress the necessity for an immediate increase of 2, 000 menin the enlisted strength of the Navy, provided for in the estimates. Fourthousand 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 requiredfor vessels in commission, and 3, 000 apprentice seamen should be kept undertraining at all times. 

ABOLITION OF NAVY YARDS. 

The Secretary of the Navy has recommended the abolition of certain of thesmaller and unnecessary navy yards, and in order to furnish a complete andcomprehensive report has referred the question of all navy yards to thejoint board of the Army and Navy. This board will shortly make its reportand the Secretary of the Navy advises me that his recommendations on thesubject will be presented early in the coming year. The measure of economycontained in a proper handling of this subject is so great and so importantto the interests of the Nation that I shall present it to Congress as aseparate subject apart from my annual message. Concentration of thenecessary work for naval vessels in a few navy yards on each coast is avital necessity if proper economy in Government expenditures is to beattained. 

AMALGAMATION OF STAFF CORPS IN THE NAVY. 

The Secretary of the Navy is striving to unify the various corps of theNavy to the extent possible and thereby stimulate a Navy spirit asdistinguished 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 asordnance, construction, or engineering. This is practically what is donenow, only some of the specialists, like the pay officers and navalconstructors, are not of the line. It is proposed to make them all of theline. 

All combatant corps should obviously be of the line. This necessitatesamalgamating the pay officers and also those engaged in the technical workof producing the finished ship. This is at present the case with the singleexception of the naval constructors, whom it is now proposed to amalgamatewith the line. 

COUNCIL OF NATIONAL DEFENSE. 

I urge again upon Congress the desirability of establishing the council ofnational defense. The bill to establish this council was before Congresslast winter, and it is hoped that this legislation will pass during thepresent session. The purpose of the council is to determine the generalpolicy of national defense and to recommend to Congress and to thePresident such measures relating to it as it shall deem necessary andexpedient. 

No such machinery is now provided by which the readiness of the Army andNavy may be improved and the programs of military and naval requirementsshall be coordinated and properly scrutinized with a view of thenecessities 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 ofin the Agricultural Department and in the Department of Commerce and Labor, I refer to the very excellent reports of the Secretaries of thosedepartments. I shall not be able to submit to Congress until after theChristmas holidays the question of conservation of our resources arising inAlaska and the West and the question of the rate for second-class mailmatter in the Post Office Department. 

COMMISSION ON EFFICIENCY AND ECONOMY. 

The law does not require the submission of the reports of the Commission onEconomy and Efficiency until the 31st of December. I shall therefore not beable to submit a report of the work of that commission until the assemblingof Congress after the holidays. 

CIVIL RETIREMENT AND CONTRIBUTORY PENSION SYSTEM. 

I have already advocated, in my last annual message, the adoption of acivil-service retirement system, with a contributory feature to it so as toreduce 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 systemthat involves no contribution from the employees. I think the experience ofother governments justifies this view; but the crying necessity for somesuch contributory system, with possibly a preliminary governmental outlay, in order to cover the initial cost and to set the system going at oncewhile the contributions are accumulating, is manifest on every side. Nothing will so much promote the economy and efficiency of the Governmentas such a system. 

ELIMINATION OF ALL LOCAL OFFICES FROM POLITICS. 

I wish to renew again my recommendation that all the local officesthroughout the country, including collectors of internal revenue, collectors of customs, postmasters of all four classes, immigrationcommissioners and marshals, should be by law covered into the classifiedservice, the necessity for confirmation by the Senate be removed, and thePresident and the others, whose time is now taken up in distributing thispatronage under the custom that has prevailed since the beginning of theGovernment in accordance with the recommendation of the Senators andCongressmen of the majority party, should be relieved from this burden. Iam confident that such a change would greatly reduce the cost ofadministering the Government, and that it would add greatly to itsefficiency. It would take away the power to use the patronage of theGovernment for political purposes. When officers are recommended bySenators and Congressmen from political motives and for political servicesrendered, it is impossible to expect that while in office the appointeeswill not regard their tenure as more or less dependent upon continuedpolitical service for their patrons, and no regulations, however stiff orrigid, will prevent this, because such regulations, in view of the methodand motive for selection, are plainly inconsistent and deemed hardly worthyof respect. 

***

State of the Union AddressWilliam H. TaftDecember 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 affectthe state of the Union to a degree not widely realized and hardly surpassedby any other factor in the welfare of the whole Nation. The position of theUnited States in the moral, intellectual, and material relations of thefamily of nations should be a matter of vital interest to every patrioticcitizen. The national prosperity and power impose upon us duties which wecan not shirk if we are to be true to our ideals. The tremendous growth ofthe export trade of the United States has already made that trade a veryreal factor in the industrial and commercial prosperity of the country. With the development of our industries the foreign commerce of the UnitedStates must rapidly become a still more essential factor in its economicwelfare. Whether we have a farseeing and wise diplomacy and are notrecklessly plunged into unnecessary wars, and whether our foreign policiesare based upon an intelligent grasp of present-day world conditions and aclear view of the potentialities of the future, or are governed by atemporary and timid expediency or by narrow views befitting an infantnation, are questions in the alternative consideration of which mustconvince any thoughtful citizen that no department of national polityoffers greater opportunity for promoting the interests of the whole peopleon the one hand, or greater chance on the other of permanent nationalinjury, than that which deals with the foreign relations of the UnitedStates. 

The fundamental foreign policies of the United States should be raised highabove the conflict of partisanship and wholly dissociated from differencesas to domestic policy. In its foreign affairs the United States shouldpresent to the world a united front. The intellectual, financial, andindustrial interests of the country and the publicist, the wage earner, thefarmer, and citizen of whatever occupation must cooperate in a spirit ofhigh patriotism to promote that national solidarity which is indispensableto national efficiency and to the attainment of national ideals. 

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

Before briefly reviewing the more important events of the last year in ourforeign relations, which it is my duty to do as charged with their conductand because diplomatic affairs are not of a nature to make it appropriatethat the Secretary of State make a formal annual report, I desire to touchupon some of the essentials to the safe management of the foreign relationsof the United States and to endeavor, also, to define clearly certainconcrete policies which are the logical modern corollaries of theundisputed and traditional fundamentals of the foreign policy of the UnitedStates. 

REORGANIZATION OF THE STATE DEPARTMENT

At the beginning of the present administration the United States, havingfully entered upon its position as a world power, with the responsibilitiesthrust upon it by the results of the Spanish-American War, and alreadyengaged in laying the groundwork of a vast foreign trade upon which itshould one day become more and more dependent, found itself without themachinery for giving thorough attention to, and taking effective actionupon, a mass of intricate business vital to American interests in everycountry in the world. 

The Department of State was an archaic and inadequate machine lacking mostof the attributes of the foreign office of any great modern power. With anappropriation made upon my recommendation by the Congress on August 5, 1909, the Department of State was completely reorganized. There werecreated Divisions of Latin American Affairs and of Far Eastern, NearEastern, and Western European Affairs. To these divisions were called fromthe foreign service diplomatic and consular officers possessing experienceand knowledge gained by actual service in different parts of the world andthus familiar with political and commercial conditions in the regionsconcerned. The work was highly specialized. The result is that wherepreviously this Government from time to time would emphasize in its foreignrelations one or another policy, now American interests in every quarter ofthe globe are being cultivated with equal assiduity. This principle ofpolitico-geographical division possesses also the good feature of makingpossible rotation between the officers of the departmental, the diplomatic, and the consular branches of the foreign service, and thus keeps the wholediplomatic and consular establishments tinder the Department of State inclose touch and equally inspired with the aims and policy of theGovernment. Through the newly created Division of Information the foreignservice is kept fully informed of what transpires from day to day in theinternational relations of the country, and contemporary foreign commentaffecting American interests is promptly brought to the attention of thedepartment. The law offices of the department were greatly strengthened. There were added foreign trade advisers to cooperate with the diplomatic andconsular bureaus and the politico-geographical divisions in the innumerablematters where commercial diplomacy or consular work calls for such specialknowledge. The same officers, together with the rest of the neworganization, are able at all times to give to American citizens accurateinformation as to conditions in foreign countries with which they havebusiness and likewise to cooperate more effectively with the Congress andalso with the other executive departments. 

MERIT SYSTEM IN CONSULAR AND DIPLOMATIC CORPS

Expert knowledge and professional training must evidently be the essence ofthis reorganization. Without a trained foreign service there would not bemen available for the work in the reorganized Department of State. President Cleveland had taken the first step toward introducing the meritsystem in the foreign service. That had been followed by the application ofthe merit principle, with excellent results, to the entire consular branch. Almost nothing, however, had been done in this direction with regard to theDiplomatic Service. In this age of commercial diplomacy it was evidently ofthe first importance to train an adequate personnel in that branch of theservice. Therefore, on November 26, 1909, by an Executive order I placedthe Diplomatic Service up to the grade of secretary of embassy, inclusive, upon exactly the same strict nonpartisan basis of the merit system, rigidexamination for appointment and promotion only for efficiency, as had beenmaintained 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 conductof the Diplomatic and Consular Services in the last four years may bejudged from the following: Three ambassadors now serving held their presentrank at the beginning of my administration. Of the ten ambassadors whom Ihave appointed, five were by promotion from the rank of minister. Nineministers now serving held their present rank at the beginning of myadministration. Of the thirty ministers whom I have appointed, eleven werepromoted from the lower grades of the foreign service or from theDepartment of State. Of the nineteen missions in Latin America, where ourrelations are close and our interest is great, fifteen chiefs of missionare service men, three having entered the service during thisadministration. Thirty-seven secretaries of embassy or legation who havereceived their initial appointments after passing successfully the requiredexamination were chosen for ascertained fitness, without regard topolitical affiliations. A dearth of candidates from Southern and WesternStates has alone made it impossible thus far completely to equalize all theStates' representations in the foreign service. In the effort to equalizethe representation of the various States in the Consular Service I havemade sixteen of the twenty-nine new appointments as consul which haveoccurred during my administration from the Southern States. This is 55 percent. Every other consular appointment made, including the promotion ofeleven young men from the consular assistant and student interpreter corps, has been by promotion or transfer, based solely upon efficiency shown inthe service. 

In order to assure to the business and other interests of the United Statesa continuance of the resulting benefits of this reform, I earnestly renewmy previous recommendations of legislation making it permanent along somesuch lines as those of the measure now Pending in Congress. 

LARGER PROVISION FOR EMBASSIES AND LEGATIONS AND FOR OTHER EXPENSES OF OURFOREIGN REPRESENTATIVES RECOMMENDED

In connection with legislation for the amelioration of the foreign service, I wish to invite attention to the advisability of placing the salaryappropriations upon a better basis. I believe that the best results wouldbe obtained by a moderate scale of salaries, with adequate funds for theexpense of proper representation, based in each case upon the scale andcost of living at each post, controlled by a system of accounting, andunder the general direction of the Department of State. 

In line with the object which I have sought of placing our foreign serviceon a basis of permanency, I have at various times advocated provision byCongress for the acquisition of Government-owned buildings for theresidence and offices of our diplomatic officers, so as to place them morenearly on an equality with similar officers of other nations and to do awaywith the discrimination which otherwise must necessarily be made, in somecases, in favor of men having large private fortunes. The act of Congresswhich I approved on February 17, 1911, was a right step in this direction. The Secretary of State has already made the limited recommendationspermitted by the act for any one year, and it is my hope that the billintroduced in the House of Representatives to carry out theserecommendations will be favorably acted on by the Congress during itspresent session. 

In some Latin-American countries the expense of government-owned legationswill be less than elsewhere, and it is certainly very urgent that in suchcountries as some of the Republics of Central America and the Caribbean, where it is peculiarly difficult to rent suitable quarters, therepresentatives of the United States should be justly and adequatelyprovided with dignified and suitable official residences. Indeed, it ishigh time that the dignity and power of this great Nation should befittingly signalized by proper buildings for the occupancy of the Nation'srepresentatives everywhere abroad. 

DIPLOMACY A HAND MAID OF COMMERCIAL INTERCOURSE AND PEACE

The diplomacy of the present administration has sought to respond to modernideas of commercial intercourse. This policy has been characterized assubstituting dollars for bullets. It is one that appeals alike toidealistic humanitarian sentiments, to the dictates of sound policy andstrategy, and to legitimate commercial aims. It I is an effort franklydirected to the increase of American trade upon the axiomatic principlethat the Government of the United States shall extend all proper support toevery legitimate and beneficial American enterprise abroad. How great havebeen the results of this diplomacy, coupled with the maximum and minimumprovision of the tariff law, will be seen by some consideration of thewonderful increase in the export trade of the United States. Becausemodern diplomacy is commercial, there has been a disposition in somequarters to attribute to it none but materialistic aims. How strikinglyerroneous is such an impression may be seen from a study of the results bywhich 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 whichset the highest mark of the aspiration of nations toward the substitutionof arbitration and reason for war in the settlement of internationaldisputes. Through the efforts of American diplomacy several wars have beenprevented or ended. I refer to the successful tripartite mediation of theArgentine Republic, Brazil, and the United States between Peru and Ecuador;the bringing of the boundary dispute between Panama and Costa Rica topeaceful arbitration; the staying of warlike preparations when Haiti andthe Dominican Republic were on the verge of hostilities; the stopping of awar in Nicaragua; the halting of internecine strife in Honduras. TheGovernment of the United States was thanked for its influence toward therestoration of amicable relations between the Argentine Republic andBolivia. The diplomacy of the United States is active in seeking to assuagethe remaining ill-feeling between this country and the Republic ofColombia. In the recent civil war in China the United States successfullyjoined with the other interested powers in urging an early cessation ofhostilities. An agreement has been reached between the Governments of Chileand Peru whereby the celebrated Tacna-Arica dispute, which has so longembittered international relations on the west coast of South America, hasat last been adjusted. Simultaneously came the news that the boundarydispute between Peru and Ecuador had entered upon a stage of amicablesettlement. The position of the United States in reference to theTacna-Arica dispute between Chile and Peru has been one of nonintervention, but one of friendly influence and pacific counsel throughout the periodduring which the dispute in question has been the subject of interchange ofviews between this Government and the two Governments immediatelyconcerned. In the general easing of international tension on the west coastof South America the tripartite mediation, to which I have referred, hasbeen a most potent and beneficent factor. 

CHINA

In China the policy of encouraging financial investment to enable thatcountry to help itself has had the result of giving new life and practicalapplication to the open-door policy. The consistent purpose of the presentadministration has been to encourage the use of American capital in thedevelopment of China by the promotion of those essential reforms to whichChina is pledged by treaties with the United States and other powers. Thehypothecation to foreign bankers in connection with certain industrialenterprises, such as the Hukuang railways, of the national revenues uponwhich these reforms depended, led the Department of State early in theadministration to demand for American citizens participation in suchenterprises, in order that the United States might have equal rights and anequal voice in all questions pertaining to the disposition of the publicrevenues concerned. The same policy of promoting international accord amongthe powers having similar treaty rights as ourselves in the matters ofreform, which could not be put into practical effect without the commonconsent of all, was likewise adopted in the case of the loan desired byChina for the reform of its currency. The principle of internationalcooperation in matters of common interest upon which our policy had alreadybeen based in all of the above instances has admittedly been a great factorin that concert of the powers which has been so happily conspicuous duringthe perilous period of transition through which the great Chinese nationhas been passing. 

CENTRAL AMERICA NEEDS OUR HELP IN DEBT ADJUSTMENT

In Central America the aim has been to help such countries as Nicaragua andHonduras to help themselves. They are the immediate beneficiaries. Thenational benefit to the United States is twofold. First, it is obviousthat the Monroe doctrine is more vital in the neighborhood of the PanamaCanal and the zone of the Caribbean than anywhere else. There, too, themaintenance of that doctrine falls most heavily upon the United States. Itis therefore essential that the countries within that sphere shall beremoved from the jeopardy involved by heavy foreign debt and chaoticnational finances and from the ever-present danger of internationalcomplications due to disorder at home. Hence the United States has beenglad to encourage and support American bankers who were willing to lend ahelping hand to the financial rehabilitation of such countries because thisfinancial rehabilitation and the protection of their customhouses frombeing the prey of would be dictators would remove at one stroke the menaceof foreign creditors and the menace of revolutionary disorder. 

The second advantage of the United States is one affecting chiefly all thesouthern and Gulf ports and the business and industry of the South. TheRepublics of Central America and the Caribbean possess great naturalwealth. They need only a measure of stability and the means of financialregeneration to enter upon an era of peace and prosperity, bringing profitand happiness to themselves and at the same time creating conditions sureto lead to a flourishing interchange of trade with this country. 

I wish to call your especial attention to the recent occurrences inNicaragua, for I believe the terrible events recorded there during therevolution of the past summer-the useless loss of life, the devastation ofproperty, the bombardment of defenseless cities, the killing and woundingof women and children, the torturing of noncombatants to exactcontributions, and the suffering of thousands of human beings-might havebeen averted had the Department of State, through approval of the loanconvention by the Senate, been permitted to carry out its nowwell-developed policy of encouraging the extending of financial aid to weakCentral American States with the primary objects of avoiding just suchrevolutions by assisting those Republics to rehabilitate their finances, toestablish their currency on a stable basis, to remove the customhouses fromthe danger of revolutions by arranging for their secure administration, andto establish reliable banks. 

During this last revolution in Nicaragua, the Government of that Republichaving admitted its inability to protect American life and property againstacts of sheer lawlessness on the part of the malcontents, and havingrequested this Government to assume that office, it became necessary toland over 2, 000 marines and bluejackets in Nicaragua. Owing to theirpresence the constituted Government of Nicaragua was free to devote itsattention wholly to its internal troubles, and was thus enabled to stampout the rebellion in a short space of time. When the Red Cross suppliessent to Granada had been exhausted, 8, 000 persons having been given food inone day upon the arrival of the American forces, our men supplied otherunfortunate, needy Nicaraguans from their own haversacks. I wish tocongratulate the officers and men of the United States navy and MarineCorps who took part in reestablishing order in Nicaragua upon theirsplendid conduct, and to record with sorrow the death of seven Americanmarines and bluejackets. Since the reestablishment of peace and order, elections have been held amid conditions of quiet and tranquility. Nearlyall the American marines have now been withdrawn. The country should soonbe on the road to recovery. The only apparent danger now threateningNicaragua arises from the shortage of funds. Although American bankers havealready rendered assistance, they may naturally be loath to advance a loanadequate to set the country upon its feet without the support of some suchconvention 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 thoseRepublics which are near neighbors of the United States, the administrationhas enforced the so-called neutrality statutes with a new vigor, and thosestatutes were greatly strengthened in restricting the exportation of armsand munitions by the joint resolution of last March. It is still aregrettable fact that certain American ports are made the rendezvous ofprofessional revolutionists and others engaged in intrigue against thepeace of those Republics. It must be admitted that occasionally arevolution in this region is justified as a real popular movement to throwoff the shackles of a vicious and tyrannical government. Such was theNicaraguan revolution against the Zelaya regime. A nation enjoying ourliberal institutions can not escape sympathy with a true popular movement, and one so well justified. In very many cases, however, revolutions in theRepublics in question have no basis in principle, but are due merely to themachinations of conscienceless and ambitious men, and have no effect but tobring new suffering and fresh burdens to an already oppressed people. Thequestion whether the use of American ports as foci of revolutionaryintrigue can be best dealt with by a further amendment to the neutralitystatutes or whether it would be safer to deal with special cases by speciallaws 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 theUnited States and the Republics of Central America and the Caribbeanregion, which of necessity must become still more intimate by reason of themutual advantages which will be presented by the opening of the PanamaCanal, I directed the Secretary of State last February to visit theseRepublics for the purpose of giving evidence of the sincere friendship andgood will which the Government and people of the United States bear towardthem. Ten Republics were visited. Everywhere he was received with acordiality of welcome and a generosity of hospitality such as to impress medeeply and to merit our warmest thanks. The appreciation of the Governmentsand people of the countries visited, which has been appropriately shown invarious ways, leaves me no doubt that his visit will conduce to that closerunion and better understanding between the United States and thoseRepublics which I have had it much at heart to promote. 

OUR MEXICAN POLICY

For two years revolution and counter-revolution has distraught theneighboring Republic of Mexico. Brigandage has involved a great deal ofdepredation upon foreign interests. There have constantly recurredquestions of extreme delicacy. On several occasions very difficultsituations have arisen on our frontier. Throughout this trying period, thepolicy 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. Iprofoundly hope that the Mexican nation may soon resume the path of order, prosperity, and progress. To that nation in its sore troubles, thesympathetic friendship of the United States has been demonstrated to a highdegree. There were in Mexico at the beginning of the revolution some thirtyor forty thousand American citizens engaged in enterprises contributinggreatly to the prosperity of that Republic and also benefiting theimportant trade between the two countries. The investment of Americancapital in Mexico has been estimated at $1, 000, 000, 000. The responsibilityof endeavoring to safeguard those interests and the dangers inseparablefrom propinquity to so turbulent a situation have been great, but I amhappy to have been able to adhere to the policy above outlined-a policywhich I hope may be soon justified by the complete success of the Mexicanpeople in regaining the blessings of peace and good order. 

AGRICULTURAL CREDITS

A most important work, accomplished in the past year by the Americandiplomatic officers in Europe, is the investigation of the agriculturalcredit system in the European countries. Both as a means to afford reliefto the consumers of this country through a more thorough development ofagricultural resources and as a means of more sufficiently maintaining theagricultural population, the project to establish credit facilities for thefarmers is a concern of vital importance to this Nation. No evidence ofprosperity among well-established farmers should blind us to the fact thatlack of capital is preventing a development of the Nation's agriculturalresources and an adequate increase of the land under cultivation; thatagricultural production is fast falling behind the increase in population;and that, in fact, although these well-established farmers are maintainedin increasing prosperity because of the natural increase in population, weare not developing the industry of agriculture. We are not breeding inproportionate numbers a race of independent and independence-lovinglandowners, for a lack of which no growth of cities can compensate. Ourfarmers have been our mainstay in times of crisis, and in future it muststill largely be upon their stability and common sense that this democracymust rely to conserve its principles of self-government. 

The need of capital which American farmers feel to-day had been experiencedby the farmers of Europe, with their centuries-old farms, many years ago. The problem had been successfully solved in the Old World and it wasevident that the farmers of this country might profit by a study of theirsystems. I therefore ordered, through the Department of State, aninvestigation to be made by the diplomatic officers in Europe, and I havelaid the results of this investigation before the governors of the variousStates with the hope that they will be used to advantage in theirforthcoming 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 Americanproducts to foreign countries. The fiscal year 1912 shows that this rate ofadvance has been maintained, the total domestic exports having a valuationapproximately Of $2, 200, 000, 000, as compared with a fraction over$2, 000, 000, 000 the previous year. It is also significant that manufacturedand partly manufactured articles continue to be the chief commoditiesforming the volume of our augmented exports, the demands of our own peoplefor consumption requiring that an increasing proportion of our abundantagricultural products be kept at home. In the fiscal year 1911 the exportsof articles in the various stages of manufacture, not including foodstuffspartly or wholly manufactured, amounted approximately to $907, 500, 000. Inthe 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 theworld in competition with the manufactures of other countries again drawsattention to the duty of this Government to use its utmost endeavors tosecure impartial treatment for American products in all markets. Healthycommercial rivalry in international intercourse is best assured by thepossession of proper means for protecting and promoting our foreign trade. It is natural that competitive countries should view with some concern thissteady expansion of our commerce. If in some instance the measures taken bythem to meet it are not entirely equitable, a remedy should be found. Informer messages I have described the negotiations of the Department ofState with foreign Governments for the adjustment of the maximum andminimum tariff as provided in section 2 of the tariff law of 1909. Theadvantages secured by the adjustment of our trade relations under this lawhave continued during the last year, and some additional cases ofdiscriminatory treatment of which we had reason to complain have beenremoved. The Department of State has for the first time in the history ofthis country obtained substantial most-favored-nation treatment from allthe countries of the world. There are, however, other instances which, while apparently not constituting undue discrimination in the sense ofsection 2, are nevertheless exceptions to the complete equity of tarifftreatment for American products that the Department of State consistentlyhas sought to obtain for American commerce abroad. 

NECESSITY FOR SUPPLEMENTARY LEGISLATION

These developments confirm the opinion conveyed to you in my annual messageof 1911, that while the maximum and minimum provision of the tariff law of1909 has been fully justified by the success achieved in removingpreviously existing undue discriminations against American products, yetexperience has shown that this feature of the law should be amended in suchway as to provide a fully effective means of meeting the varying degrees ofdiscriminatory treatment of American commerce in foreign countries stillencountered, as well as to protect against injurious treatment on the partof foreign Governments, through either legislative or administrativemeasures, the financial interests abroad of American citizens whoseenterprises enlarge the market for American commodities. 

I can not too strongly recommend to the Congress the passage of some suchenabling measure as the bill which was recommended by the Secretary ofState in his letter of December 13, 1911. The object of the proposedlegislation is, in brief, to enable the Executive to apply, as the case mayrequire, to any or all commodities, whether or not on the free list from acountry which discriminates against the United States, a graduated scale ofduties up to the maximum Of 25 per cent ad valorem provided in the presentlaw. Flat tariffs are out of date. Nations no longer accord equal tarifftreatment to all other nations irrespective of the treatment from themreceived. Such a flexible power at the command of the Executive wouldserve to moderate any unfavorable tendencies on the part of those countriesfrom which the importations into the United States are substantiallyconfined to articles on the free list as well as of the countries whichfind a lucrative market in the United States for their products underexisting customs rates. It is very necessary that the American Governmentshould be equipped with weapons of negotiation adapted to modern economicconditions, in order that we may at all times be in a position to gain notonly technically just but actually equitable treatment for our trade, andalso 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 newdiplomacy and its effectiveness upon the material as well as the more idealside, it may be remarked that through direct official efforts alone therehave been obtained in the course of this administration, contracts fromforeign Governments involving an expenditure of $50, 000, 000 in thefactories of the United States. Consideration of this fact and somereflection upon the necessary effects of a scientific tariff system and aforeign service alert and equipped to cooperate with the business men ofAmerica carry the conviction that the gratifying increase in the exporttrade of this country is, in substantial amount, due to our improvedgovernmental methods of protecting and stimulating it. It is germane tothese observations to remark that in the two years that have elapsed sincethe successful negotiation of our new treaty with Japan, which at the timeseemed to present so many practical difficulties, our export trade to thatcountry has increased at the rate of over $1, 000, 000 a month. Our exportsto Japan for the year ended June 30, 1910, were $21, 959, 310, while for theyear ended June 30, 1912, the exports were $53, 478, 046, a net increase inthe 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 andGreat Britain on August 18, 1910, for the arbitration of outstandingpecuniary claims, a schedule of claims and the terms of submission havebeen agreed upon by the two Governments, and together with the specialagreement were approved by the Senate on July 19, 1911, but in accordancewith the terms of the agreement they did not go into effect until confirmedby the two Governments by an exchange of notes, which was done on April 26last. Negotiations, are still in progress for a supplemental schedule ofclaims to be submitted to arbitration under this agreement, and meanwhilethe necessary preparations for the arbitration of the claims included inthe first schedule have been undertaken and are being carried on under theauthority of an appropriation made for that purpose at the last session ofCongress. It is anticipated that the two Governments will be prepared tocall upon the arbitration tribunal, established under this agreement, tomeet 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 thefur-seal convention Of July 7, 1911, between Great Britain, Japan, Russia, and the United States provided for the suspension of all land killing ofseals on the Pribilof Islands for a period of five years, and an objectionhas now been presented to this provision by the other parties in interest, which raises the issue as to whether or not this prohibition of landkilling is inconsistent with the spirit, if not the letter, of the treatystipulations. The justification of establishing this close season depends, under the terms of the convention, upon how far, if at all, it is necessaryfor protecting and preserving the American fur-seal herd and for increasingits number. This is a question requiring examination of the presentcondition of the herd and the treatment which it needs in the light ofactual experience and scientific investigation. A careful examination ofthe subject is now being made, and this Government will soon be inpossession of a considerable amount of new information about the Americanseal herd, which has been secured during the past season and will be ofgreat value in determining this question; and if it should appear thatthere is any uncertainty as to the real necessity for imposing a closeseason at this time I shall take an early opportunity to address a specialmessage to Congress on this subject, in the belief that this Governmentshould yield on this point rather than give the slightest ground for thecharge that we have been in any way remiss in observing our treatyobligations. 

FINAL SETTLEMENT OF NORTH ATLANTIC FISHERIES DISPUTE

On the 20th of July last an agreement was concluded between the UnitedStates and Great Britain adopting, with certain modifications, the rulesand method of procedure recommended in the award rendered by the NorthAtlantic Coast Fisheries Arbitration Tribunal on September 7, 1910, for thesettlement hereafter, in accordance with the principles laid down in theaward, of questions arising with reference to the exercise of the Americanfishing liberties under Article I of the treaty of October 20, 1818, between the United States and Great Britain. This agreement received theapproval of the Senate on August I and was formally ratified by the twoGovernments on November 15 last. The rules and a method of procedureembodied in the award provided for determining by an impartial tribunal thereasonableness of any new fishery regulations on the treaty coasts ofNewfoundland and Canada before such regulations could be enforced againstAmerican fishermen exercising their treaty liberties on those coasts, andalso for determining the delimitation of bays on such coasts more than 10miles wide, in accordance with the definition adopted by the tribunal ofthe meaning of the word "bays" as used in the treaty. In the subsequentnegotiations between the two Governments, undertaken for the purpose ofgiving practical effect to these rules and methods of procedure, it wasfound that certain modifications therein were desirable from the point ofview of both Governments, and these negotiations have finally resulted inthe agreement above mentioned by which the award recommendations asmodified by mutual consent of the two Governments are finally adopted andmade effective, thus bringing this century-old controversy to a finalconclusion, which is equally beneficial and satisfactory to bothGovernments. 

IMPERIAL VALLEY AND MEXICO

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

CHAMIZAL DISPUTE

In the interest of the people and city of El Paso this Government has beenassiduous in its efforts to bring to an early settlement the long-standingChamizal dispute with Mexico. Much has been accomplished, and while thefinal solution of the dispute is not immediate, the favorable attitudelately assumed by the Mexican Government encourages the hope that thistroublesome question will be satisfactorily and definitively settled at anearly day. 

INTERNATIONAL COMMISSION OF JURISTS

In pursuance of the convention of August 23, 1906, signed at the Third PanAmerican Conference, held at Rio de Janeiro, the International Commissionof jurists met at that capital during the month of last June. At thismeeting 16 American Republics were represented, including the UnitedStates, and comprehensive plans for the future work of the commission wereadopted. At the next meeting fixed for June, 1914, committees alreadyappointed are instructed to I report regarding topics assigned to them. 

OPIUM CONFERENCE-UNFORTUNATE FAILURE OF OUR GOVERNMENT TO ENACT RECOMMENDEDLEGISLATION

In my message on foreign relations communicated to the two Houses ofCongress December 7, 1911, I called especial attention to the assembling ofthe Opium Conference at The Hague, to the fact that that conference was toreview 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 takeimmediate action on the anti-narcotic legislation before the Congress, towhich I had previously called attention by a special message. 

The international convention adopted by the conference conforms almostentirely to the principles contained in the proposed anti-narcoticlegislation which has been before the last two Congresses. It was mostunfortunate that this Government, having taken the initiative in theinternational action which eventuated in the important international opiumconvention, failed to do its share in the great work by neglecting to passthe necessary legislation to correct the deplorable narcotic evils in theUnited States as well as to redeem international pledges upon which itentered by virtue of the above-mentioned convention. The Congress at itspresent session should enact into law those bills now before it which havebeen so carefully drawn up in collaboration between the Department of Stateand the other executive departments, and which have behind them not onlythe moral sentiment of the country, but the practical support of all thelegitimate trade interests likely to be affected. Since the internationalconvention was signed, adherence to it has been made by several EuropeanStates not represented at the conference at The Hague and also by seventeenLatin-American Republics. 

EUROPE AND THE NEAR EAST

The war between Italy and Turkey came to a close in October last by thesignature of a treaty of peace, subsequently to which the Ottoman Empirerenounced sovereignty over Cyrenaica and Tripolitania in favor of Italy. During the past year the Near East has unfortunately been the theater ofconstant hostilities. Almost simultaneously with the conclusion of peacebetween Italy and Turkey and their arrival at an adjustment of the complexquestions at issue between them, war broke out between Turkey on the onehand and Bulgaria, Greece, Montenegro, and Servia on the other. The UnitedStates has happily been involved neither directly nor indirectly with thecauses or questions incident to any of these hostilities and has maintainedin regard to them an attitude of absolute neutrality and of completepolitical disinterestedness. In the second war in which the Ottoman Empirehas been engaged the loss of life and the consequent distress on both sideshave been appalling, and the United States has found occasion, in theinterest of humanity, to carry out the charitable desires of the Americanpeople, to extend a measure of relief to the sufferers on either sidethrough the impartial medium of the Red Cross. Beyond this the chief careof the Government of the United States has been to make due provision forthe protection of its national resident in belligerent territory. In theexercise of my duty in this matter I have dispatched to Turkish waters aspecial-service squadron, consisting of two armored cruisers, in order thatthis Government may if need be bear its part in such measures as it may benecessary for the interested nations to adopt for the safeguarding offoreign lives and property in the Ottoman Empire in the event that adangerous situation should develop. In the meanwhile the several interestedEuropean powers have promised to extend to American citizens the benefit ofsuch precautionary or protective measures as they might adopt, in the samemanner in which it has been the practice of this Government to extend itsprotection to all foreign residents in those countries of the WesternHemisphere in which it has from time to time been the task of the UnitedStates to act in the interest of peace and good order. The early appearanceof a large fleet of European warships in the Bosphorus apparently assuredthe protection of foreigners in that quarter, where the presence of theAmerican stationnaire the U. S. S. Scorpion sufficed, tinder thecircumstances, to represent the United States. Our cruisers were thus leftfree to act if need be along the Mediterranean coasts should any unexpectedcontingency arise affecting the numerous American interests in theneighborhood of Smyrna and Beirut. 

SPITZBERGEN

The great preponderance of American material interests in the sub-arcticisland of Spitzbergen, which has always been regarded politically as "noman's land, " impels this Government to a continued and lively interest inthe international dispositions to be made for the political governance andadministration of that region. The conflict of certain claims of Americancitizens and others is in a fair way to adjustment, while the settlement ofmatters of administration, whether by international conference of theinterested powers or otherwise, continues to be the subject of exchange ofviews between the Governments concerned. 

LIBERIA

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

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

MOROCCO

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

THE FAR EAST

The political disturbances in China in the autumn and winter of 1911-12resulted in the abdication of the Manchu rulers on February 12, followed bythe formation of a provisional republican government empowered to conductthe affairs of the nation until a permanent government might be regularlyestablished. The natural sympathy of the American people with theassumption of republican principles by the Chinese people was appropriatelyexpressed in a concurrent resolution of Congress on April 17, 1912. Aconstituent assembly, composed of representatives duly chosen by the peopleof China in the elections that are now being held, has been called to meetin January next to adopt a permanent constitution and organize theGovernment of the nascent Republic. During the formative constitutionalstage and pending definite action by the assembly, as expressive of thepopular will, and the hoped-for establishment of a stable republican formof government, capable of fulfilling its international obligations, theUnited States is, according to precedent, maintaining full and friendly defacto relations with the provisional Government. 

The new condition of affairs thus created has presented many serious andcomplicated problems, both of internal rehabilitation and of internationalrelations, whose solution it was realized would necessarily require muchtime and patience. From the beginning of the upheaval last autumn it wasfelt by the United States, in common with the other powers having largeinterests in China, that independent action by the foreign Governments intheir own individual interests would add further confusion to a situationalready complicated. A policy of international cooperation was accordinglyadopted in an understanding, reached early in the disturbances, to acttogether for the protection of the lives and property of foreigners ifmenaced, to maintain an attitude of strict impartiality as between thecontending factions, and to abstain from any endeavor to influence theChinese in their organization of a new form of government. In view of theseriousness of the disturbances and their general character, the Americanminister at Peking was instructed at his discretion to advise our nationalsin the affected districts to concentrate at such centers as were easilyaccessible to foreign troops or men of war. Nineteen of our naval vesselswere stationed at various Chinese ports, and other measures were promptlytaken for the adequate protection of American interests. 

It was further mutually agreed, in the hope of hastening an end tohostilities, that none of the interested powers would approve the making ofloans by its nationals to either side. As soon, however, as a unitedprovisional Government of China was assured, the United States joined in afavorable consideration of that Government's request for advances neededfor immediate administrative necessities and later for a loan to effect apermanent national reorganization. The interested Governments had already, by common consent, adopted, in respect to the purposes, expenditure, andsecurity of any loans to China made by their nationals, certain conditionswhich were held to be essential, not only to secure reasonable protectionfor the foreign investors, but also to safeguard and strengthen China'scredit by discouraging indiscriminate borrowing and by insuring theapplication of the funds toward the establishment of the stable andeffective government necessary to China's welfare. In June lastrepresentative banking groups of the United States, France, Germany, GreatBritain, Japan, and Russia formulated, with the general sanction of theirrespective Governments, the guaranties that would be expected in relationto the expenditure and security of the large reorganization loan desired byChina, which, however, have thus far proved unacceptable to the provisionalGovernment. 

SPECIAL MISSION OF CONDOLENCE TO JAPAN

In August last I accredited the Secretary of State as special ambassador toJapan, charged with the mission of bearing to the imperial family, theGovernment, and the people of that Empire the sympathetic message of theAmerican Commonwealth oil the sad occasion of the death of His Majesty theEmperor Mutsuhito, whose long and benevolent reign was the greater part ofJapan's modern history. The kindly reception everywhere accorded toSecretary Knox showed that his mission was deeply appreciated by theJapanese nation and emphasized strongly the friendly relations that havefor 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 theinvitation of the United States to send two army officers to study at theCoast Artillery School at Fort Monroe. The long-standing Alsop claim, whichhad been the only hindrance to the healthy growth of the most friendlyrelations between the United States and Chile, having been eliminatedthrough the submission of the question to His Britannic Majesty King GeorgeV as "amiable compositeur, " it is a cause of much gratification to me thatour relations with Chile are now established upon a firm basis of growingfriendship. The Chilean Government has placed an officer of the UnitedStates Coast Artillery in charge of the Chilean Coast Artillery School, andhas shown appreciation of American methods by confiding to an American firmimportant work for the Chilean coast defenses. 

Last year a revolution against the established Government of Ecuador brokeout at the principal port of that Republic. Previous to this occurrence thechief American interest in Ecuador, represented by the Guayaquil & QuitoRailway Co. , incorporated in the United States, had rendered extensivetransportation and other services on account to the Ecuadorian Government, the amount of which ran into a sum which was steadily increasing and whichthe Ecuadorian Government had made no provision to pay, thereby threateningto crush out the very existence of this American enterprise. Whentranquillity had been restored to Ecuador as a result of the triumphantprogress of the Government forces from Quito, this Government interposedits good offices to the end that the American interests in Ecuador might besaved from complete extinction. As a part of the arrangement which wasreached between the parties, and at the request of the Government ofEcuador, I have consented to name an arbitrator, who, acting under theterms of the railroad contract, with an arbitrator named by the EcuadorianGovernment, will pass upon the claims that have arisen since thearrangement reached through the action of a similar arbitral tribunal in1908. 

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 theproper sanitation of Guayaquil. As a result a detail of officers of theCanal Zone will be sent to Guayaquil to recommend measures that will leadto the complete permanent sanitation of this plague and fever infectedregion of that Republic, which has for so long constituted a menace tohealth conditions on the Canal Zone. It is hoped that the report which thismission will furnish will point out a way whereby the modicum of assistancewhich the United States may properly lend the Ecuadorian Government may bemade effective in ridding the west coast of South America of a focus ofcontagion to the future commercial current passing through the PanamaCanal. 

In the matter of the claim of John Celestine Landreau against theGovernment of Peru, which claim arises out of certain contracts andtransactions 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, whichhave been characterized by the utmost friendliness and good will on bothsides, the Department of State has succeeded in securing the consent ofPeru to the arbitration of the claim, and that the negotiations attendingthe drafting and signature of a protocol submitting the claim to anarbitral tribunal are proceeding with due celerity. 

An officer of the American Public Health Service and an American sanitaryengineer are now on the way to Iquitos, in the employ of the PeruvianGovernment, to take charge of the sanitation of that river port. Peru isbuilding a number of submarines in this country, and continues to showevery desire to have American capital invested in the Republic. 

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

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

Venezuela is paying off the last of the claims the settlement of which wasprovided for by the Washington protocols, including those of Americancitizens. Our relations with Venezuela are most cordial, and the trade ofthat Republic with the United States is now greater than with any othercountry. 

CENTRAL AMERICA AND THE CARIBBEAN

During the past summer the revolution against the administration whichfollowed the assassination of President Caceres a year ago last Novemberbrought the Dominican Republic to the verge of administrative chaos, without offering any guaranties of eventual stability in the ultimatesuccess of either party. In pursuance of the treaty relations of the UnitedStates with the Dominican Republic, which were threatened by the necessityof suspending the operation under American administration of thecustomhouses on the Haitian frontier, it was found necessary to dispatchspecial commissioners to the island to reestablish the customhouses andwith a guard sufficient to insure needed protection to the customsadministration. The efforts which have been made appear to have resulted inthe restoration of normal conditions throughout the Republic. The goodoffices which the commissioners were able to exercise were instrumental inbringing the contending parties together and in furnishing a basis ofadjustment which it is hoped will result in permanent benefit to theDominican people. 

Mindful of its treaty relations, and owing to the position of theGovernment of the United States as mediator between the Dominican Republicand Haiti in their boundary dispute, and because of the further fact thatthe revolutionary activities on the Haitian-Dominican frontier had becomeso active as practically to obliterate the line of demarcation that hadbeen heretofore recognized pending the definitive settlement of theboundary in controversy, it was found necessary to indicate to the twoisland Governments a provisional de facto boundary line. This was donewithout prejudice to the rights or obligations of either country in a finalsettlement to be reached by arbitration. The tentative line chosen was onewhich, under the circumstances brought to the knowledge of this Government, seemed to conform to the best interests of the disputants. The borderpatrol which it had been found necessary to reestablish for customspurposes between the two countries was instructed provisionally to observethis line. 

The Republic of Cuba last May was in the throes of a lawless uprising thatfor a time threatened the destruction of a great deal of valuableproperty-much of it owned by Americans and other foreigners-as well as theexistence of the Government itself. The armed forces of Cuba beinginadequate to guard property from attack and at the same time properly tooperate against the rebels, a force of American marines was dispatched fromour naval station at Guantanamo into the Province of Oriente for theprotection of American and other foreign life and property. The CubanGovernment was thus able to use all its forces in putting down theoutbreak, which it succeeded in doing in a period of six weeks. Thepresence of two American warships in the harbor of Habana during the mostcritical period of this disturbance contributed in great measure to allaythe fears of the inhabitants, including a large foreign colony. 

There has been under discussion with the Government of Cuba for some timethe question of the release by this Government of its leasehold rights atBahia Honda, on the northern coast of Cuba, and the enlargement, inexchange therefor, of the naval station which has been established atGuantanamo Bay, on the south. As the result of the negotiations thuscarried on an agreement has been reached between the two Governmentsproviding for the suitable enlargement of the Guantanamo Bay station uponterms which are entirely fair and equitable to all parties concerned. 

At the request alike of the Government and both political parties inPanama, an American commission undertook supervision of the recentpresidential election in that Republic, where our treaty relations, and, indeed, every geographical consideration, make the maintenance of order andsatisfactory conditions of peculiar interest to the Government of theUnited States. The elections passed without disorder, and the newadministration has entered upon its functions. 

The Government of Great Britain has asked the support of the United Statesfor the protection of the interests of British holders of the foreignbonded debt of Guatemala. While this Government is hopeful of anarrangement equitable to the British bondholders, it is naturally unable toview the question apart from its relation to the broad subject of financialstability in Central America, in which the policy of the United States doesnot permit it to escape a vital interest. Through a renewal of negotiationsbetween the Government of Guatemala and American bankers, the aim of whichis a loan for the rehabilitation of Guatemalan finances, a way appears tobe open by which the Government of Guatemala could promptly satisfy anyequitable and just British claims, and at the same time so improve itswhole financial position as to contribute greatly to the increasedprosperity of the Republic and to redound to the benefit of foreigninvestments and foreign trade with that country. Failing such anarrangement, it may become impossible for the Government of the UnitedStates to escape its obligations in connection with such measures as maybecome 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 theintervention of the United States, the Government of Honduras wasespecially menaced; but fortunately peaceful conditions were maintainedwithin the borders of that Republic. The financial condition of thatcountry remains unchanged, no means having been found for the finaladjustment of pressing outstanding foreign claims. This makes it the moreregrettable that the financial convention between the United States andHonduras has thus far failed of ratification. The Government of the UnitedStates continues to hold itself ready to cooperate with the Government ofHonduras, which it is believed, can not much longer delay the meeting ofits foreign obligations, and it is hoped at the proper time Americanbankers will be willing to cooperate for this purpose. 

NECESSITY FOR GREATER GOVERNMENTAL EFFORT IN RETENTION AND EXPANSION OF OURFOREIGN TRADE

It is not possible to make to the Congress a communication upon the presentforeign relations of the United States so detailed as to convey an adequateimpression of the enormous increase in the importance and activities ofthose relations. If this Government is really to preserve to the Americanpeople that free opportunity in foreign markets which will soon beindispensable to our prosperity, even greater efforts must be made. Otherwise the American merchant, manufacturer, and exporter will find manya field in which American trade should logically predominate preemptedthrough the more energetic efforts of other governments and othercommercial nations. 

There are many ways in which through hearty cooperation the legislative andexecutive branches of this Government can do much. The absolute essentialis the spirit of united effort and singleness of purpose. I will alludeonly 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 itscommercial activity and enterprise unless we have a merchant marine. American commerce and enterprise can not be effectively fostered in thosefields unless we have good American banks in the countries referred to. Weneed American newspapers in those countries and proper means for publicinformation about them. We need to assure the permanency of a trainedforeign service. We need legislation enabling the members of the foreignservice to be systematically brought in direct contact with the industrial, manufacturing, and exporting interests of this country in order thatAmerican business men may enter the foreign field with a clear perceptionof the exact conditions to be dealt with and the officers themselves mayprosecute their work with a clear idea of what American industrial andmanufacturing interests require. 

CONCLUSION

Congress should fully realize the conditions which obtain in the world aswe find ourselves at the threshold of our middle age as a Nation. We haveemerged full grown as a peer in the great concourse of nations. We havepassed through various formative periods. We have been self-centered in thestruggle to develop our domestic resources and deal with our domesticquestions. The Nation is now too matured to continue in its foreignrelations those temporary expedients natural to a people to whom domesticaffairs are the sole concern. In the past our diplomacy has oftenconsisted, in normal times, in a mere assertion of the right tointernational existence. We are now in a larger relation with broaderrights of our own and obligations to others than ourselves. A number ofgreat guiding principles were laid down early in the history of thisGovernment. The recent task of our diplomacy has been to adjust thoseprinciples to the conditions of to-day, to develop their corollaries, tofind practical applications of the old principles expanded to meet newsituations. Thus are being evolved bases upon which can rest thesuperstructure of policies which must grow with the destined progress ofthis Nation. The successful conduct of our foreign relations demands abroad and a modern view. We can not meet new questions nor build for thefuture if we confine ourselves to outworn dogmas of the past and to theperspective appropriate at our emergence from colonial times andconditions. The opening of the Panama Canal will mark a new era in ourinternational life and create new and worldwide conditions which, withtheir vast correlations and consequences, will obtain for hundreds of yearsto come. We must not wait for events to overtake us unawares. Withcontinuity of purpose we must deal with the problems of our externalrelations by a diplomacy modern, resourceful, magnanimous, and fittinglyexpressive of the high ideals of a great nation. 

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

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

BUSINESS CONDITIONS

The condition of the country with reference to business could hardly bebetter. While the four years of the administration now drawing to a closehave not developed great speculative expansion or a wide field of newinvestment, the recovery and progress made from the depressing conditionsfollowing the panic of 1907 have been steady and the improvement has beenclear and easily traced in the statistics. The business of the country isnow on a solid basis. Credits are not unduly extended, and every phase ofthe situation seems in a state of preparedness for a period of unexampledprosperity. Manufacturing concerns are running at their full capacity andthe demand for labor was never so constant and growing. The foreign tradeof the country for this year will exceed $4, 000, 000, 000, while the balancein our favor-that of the excess of exports over imports-will exceed$500, 000, 000. More than half our exports are manufactures or partlymanufactured material, while our exports of farm products do not show thesame increase because of domestic consumption. It is a year of bumpercrops; 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 hasgradually fallen, and yet the total value of the entire crop is greater byover $1, 000, 000, 000 than we have known in our history. 

CONDITION OF THE TREASURY

The condition of the Treasury is very satisfactory. The totalinterest-bearing debt is $963, 777, 770, of which $134, 631, 980 constitute thePanama Canal loan. The noninterest-bearing debt is $378, 301, 284. 90, including $346, 681, 016 of greenbacks. We have in the Treasury $150, 000, 000in gold coin as a reserve against the outstanding greenbacks; and inaddition 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 lastyear. 

RECEIPTS AND EXPENDITURES

For three years the expenditures of the Government have decreased under theinfluence of an effort to economize. This year presents an apparentexception. The estimate by the Secretary of the Treasury of the ordinaryreceipts, exclusive of postal revenues, for the year ending June 30, 1914, indicates that they will amount to $710, 000, 000. The sum of the estimatesof the expenditures for that same year, exclusive of Panama Canaldisbursements and postal disbursements payable from postal revenues, is$732, 000, 000, indicating a deficit Of $22, 000, 000. For the year ending June30, 1913, similarly estimated receipts were $667, 000, 000, while the totalcorresponding estimate of expenditures for that year, submitted through theSecretary of the Treasury to Congress, amounted to $656, 000, 000. This showsan increase of $76, 000, 000 in the estimates for 1914 over the totalestimates of 1913. This is due to an increase Of $25, 000, 000 in theestimate for rivers and harbors for the next year on projects and surveysauthorized 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 NavyDepartment Of $24, 000, 000. The estimate for the Navy Department for theyear 1913 included two battleships. Congress made provision for only onebattleship, and therefore the Navy Department has deemed it necessary andproper to make an estimate which includes the first year's expenditure forthree battleships in addition to the amount required for work on theuncompleted ships now under construction. In addition to the naturalincrease in the expenditures for the uncompleted ships, and the additionalbattleship estimated for, the other increases are due to the payrequired for 4, 000 or more additional enlisted men in the Navy; and to thismust be added the additional cost of construction imposed by the change inthe eight-hour law which makes it applicable to ships built in privateshipyards. 

With the exceptions of these three items, the estimates show a reductionthis 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 lessthan for 1913. 

OUR BANKING AND CURRENCY SYSTEM

A time when panics seem far removed is the best time for us to prepare ourfinancial system to withstand a storm. The most crying need this countryhas is a proper banking and currency system. The existing one isinadequate, 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 oftrade. Our present system lacks the indispensable quality of elasticity. 

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

After the panic of 1907 Congress realized that the present system was notadapted to the country's needs and that under it panics were possible thatmight properly be avoided by legislative provision. Accordingly a monetarycommission was appointed which made a report in February, 1912. The systemwhich they recommended involved a National Reserve Association, which was, in certain of its faculties and functions, a bank, and which was giventhrough its governing authorities the power, by issuing circulating notesfor approved commercial paper, by fixing discounts, and by other methods oftransfer of currency, to expand the supply of the monetary medium where itwas most needed to prevent the export or hoarding of gold and generally toexercise such supervision over the supply of money in every part of thecountry as to prevent a stringency and a panic. The stock in thisassociation was to be distributed to the banks of the whole United States, State and National, in a mixed proportion to bank units and to capitalstock paid in. The control of the association was vested in a board ofdirectors to be elected by representatives of the banks, except certainex-officio directors, three Cabinet officers, and the Comptroller of theCurrency. The President was to appoint the governor of the association fromthree persons to be selected by the directors, while the two deputygovernors were to be elected by the board of directors. The details of theplan were worked out with great care and ability, and the plan in generalseems to me to furnish the basis for a proper solution of our presentdifficulties. I feel that the Government might very properly be given agreater voice in the executive committee of the board of directors withoutdanger of injecting politics into its management, but I think thefederation system of banks is a good one, provided proper precautions aretaken to prevent banks of large capital from absorbing power throughownership of stock in other banks. The objections to a central bank itseems to me are obviated if the ownership of the reserve association isdistributed among all the banks of a country in which banking is free. Theearnings of the reserve association are limited in percentage tit areasonable and fixed amount, and the profits over and above this are to beturned into the Government Treasury. It is quite probable that stillgreater security against control by money centers may be worked into theplan. 

Certain it is, however, that the objections which were made in the pasthistory of this country to a central bank as furnishing a monopoly offinancial power to private individuals, would not apply to an associationwhose ownership and control is so widely distributed and is divided betweenall the banks of the country, State and National, on the one hand, and theChief Executive through three department heads and his Comptroller of theCurrency, on the other. The ancient hostility to a national bank, with itsbranches, in which is concentrated the privilege of doing a bankingbusiness and carrying on the financial transactions of the Government, hasprevented the establishment of such a bank since it was abolished in theJackson Administration. Our present national banking law has obviatedobjections growing out of the same cause by providing a free banking systemin which any set of stockholders can establish a national bank if theycomply with the conditions of law. It seems to me that the National ReserveAssociation meets the same objection in a similar way; that is, by givingto each bank, State and National, in accordance with its size, a certainshare in the stock of the reserve association, nontransferable and only tobe held by the bank while it performs its functions as a partner in thereserve association. 

The report of the commission recommends provisions for the imposition of agraduated tax on the expanded currency of such a character as to furnish amotive for reducing the issue of notes whenever their presence in the moneymarket is not required by the exigencies of trade. In other words, thewhole system has been worked out with the greatest care. Theoretically itpresents a plan that ought to command support. Practically it may requiremodification in various of its provisions in order to make the securityagainst, abuses by combinations among the banks impossible. But in the faceof the crying necessity that there is for improvement in our presentsystem, I urgently invite the attention of Congress to the proposed planand the report of the commission, with the hope that an earnestconsideration may suggest amendments and changes within the general planwhich will lead to its adoption for the benefit of the country. There is noclass in the community more interested in a safe and sane banking andcurrency system, one which will prevent panics and automatically furnish ineach trade center the currency needed in the carrying on of the business atthat center, than the wage earner. There is no class in the community whoseexperience better qualifies them to make suggestions as to the sufficiencyof a currency and banking system than the bankers and business men. Oughtwe, therefore, to ignore their recommendations and reject their financialjudgment as to the proper method of reforming our financial system merelybecause of the suspicion which exists against them in the minds of many ofour fellow citizens? Is it not the duty of Congress to take up the plansuggested, examine it from all standpoints, give impartial consideration tothe testimony of those whose experience ought to fit them to give the bestadvice on the subject, and then to adopt some plan which will secure thebenefits desired?

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

THE TARIFF

I have regarded it as my duty in former messages to the Congress to urgethe revision of the tariff upon principles of protection. It was myjudgment that the customs duties ought to be revised downward, but that thereduction ought not to be below a rate which would represent the differencein the cost of production between the article in question at home andabroad, and for this and other reasons I vetoed several bills which werepresented to me in the last session of this Congress. Now that a newCongress has been elected on a platform of a tariff for revenue only ratherthan a protective tariff, and is to revise the tariff on that basis, it isneedless for me to occupy the time of this Congress with arguments orrecommendations in favor of a protective tariff. 

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

BUDGET

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

WAR DEPARTMENT

The War Department combines within its jurisdiction functions which inother countries usually occupy three departments. It not only has themanagement of the Army and the coast defenses, but its jurisdiction extendsto the government of the Philippines and of Porto Rico and the control ofthe receivership of the customs revenues of the Dominican Republic; it alsoincludes the recommendation of all plans for the improvement of harbors andwaterways and their execution when adopted; and, by virtue of an Executiveorder, the supervision of the construction of the Panama Canal. 

ARMY REORGANIZATION

Our small Army now consists of 83, 809 men, excluding the 5, 000 Philippinescouts. Leaving out of consideration the Coast Artillery force, whoseposition is fixed in our various seacoast defenses, and the presentgarrisons of our various insular possessions, we have to-day within thecontinental United States a mobile Army of only about 35, 000 men. Thislittle force must be still further drawn upon to supply the new garrisonsfor the great naval base which is being established at Pearl Harbor, in theHawaiian Islands, and to protect the locks now rapidly approachingcompletion at Panama. The forces remaining in the United States are nowscattered in nearly 50 Posts, situated for a variety of historical reasonsin 24 States. These posts contain only fractions of regiments, averagingless than 700 men each. In time of peace it has been our historical policyto administer these units separately by a geographical organization. Inother words, our Army in time of peace has never been a united organizationbut merely scattered groups of companies, battalions, and regiments, andthe first task in time of war has been to create out of these scatteredunits an Army fit for effective teamwork and cooperation. 

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

A comprehensive plan of Army reorganization was prepared by the War CollegeDivision of the General Staff. This plan was thoroughly discussed lastsummer at a series of open conferences held by the Secretary of War andattended by representatives from all branches of the Army and fromCongress. In printed form it has been distributed to Members of Congressand throughout the Army and the National Guard, and widely throughinstitutions of learning and elsewhere in the United States. In it, for thefirst time, we have a tentative chart for future progress. 

Under the influence of this study definite and effective steps have beentaken toward Army reorganization so far as such reorganization lies withinthe Executive power. Hitherto there has been no difference of policy in thetreatment of the organization of our foreign garrisons from those of troopswithin the United States. The difference of situation is vital, and theforeign garrison should be prepared to defend itself at an instant's noticeagainst a foe who may command the sea. Unlike the troops in the UnitedStates, it can not count upon reinforcements or recruitment. It is anoutpost 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 duringtime of peace at half strength has no application to our foreign garrisons. During the past year this defect has been remedied as to the Philippinesgarrison. The former garrison of 12 reduced regiments has been replaced bya garrison of 6 regiments at full strength, giving fully the same number ofriflemen at an estimated economy in cost of maintenance of over $1, 000, 000per year. This garrison is to be permanent. Its regimental units, insteadof being transferred periodically back and forth from the United States, will remain in the islands. The officers and men composing these unitswill, however, serve a regular tropical detail as usual, thus involving nogreater hardship upon the personnel and greatly increasing theeffectiveness of the garrison. A similar policy is proposed for theHawaiian and Panama garrisons as fast as the barracks for them arecompleted. I strongly urge upon Congress that the necessary appropriationsfor this purpose should be promptly made. It is, in my opinion, of firstimportance that these national outposts, upon which a successful homedefense will, primarily, depend, should be finished and placed in effectivecondition at the earliest possible day. 

THE HOME ARMY

Simultaneously with the foregoing steps the War Department has beenproceeding with the reorganization of the Army at home. The formerlydisassociated units are being united into a tactical organization of threedivisions, each consisting of two or three brigades of Infantry and, so faras practicable, a proper proportion of divisional Cavalry and Artillery. Ofcourse, the extent to which this reform can be carried by the Executive ispractically limited to a paper organization. The scattered units can bebrought under a proper organization, but they will remain physicallyscattered until Congress supplies the necessary funds for grouping them inmore concentrated posts. Until that is done the present difficulty ofdrilling our scattered groups together, and thus training them for theproper team play, can not be removed. But we shall, at least, have an Armywhich will know its own organization and will be inspected by its propercommanders, and to which, as a unit, emergency orders can be issued in timeof war or other emergency. Moreover, the organization, which in manyrespects is necessarily a skeleton, will furnish a guide for futuredevelopment. The separate regiments and companies will know the brigadesand divisions to which they belong. They will be maneuvered togetherwhenever maneuvers are established by Congress, and the gaps in theirorganization will show the pattern into which can be filled new troops asthe Nation grows and a larger Army is provided. 

REGULAR ARMY RESERVE

One of the most important reforms accomplished during the past year hasbeen the legislation enacted in the Army appropriation bill of last summer, providing for a Regular Army reserve. Hitherto our national policy hasassumed that at the outbreak of war our regiments would be immediatelyraised to full strength. But our laws have provided no means by which thiscould be accomplished, or by which the losses of the regiments when oncesent to the front could be repaired. In this respect we have neglected thelessons learned by other nations. The new law provides that the soldier, after serving four years with colors, shall pass into a reserve for threeyears. 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 toactive duty only in case of war or other national emergency, and when socalled and only in such case will receive a stated amount of pay for all ofthe period in which he has been a member of the reserve. The legislation isimperfect, in my opinion, in certain particulars, but it is a mostimportant step in the right direction, and I earnestly hope that it will becarefully 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 aspossible, to those of the Regular Army, and its practical efficiency, underthe effect of this training, has very greatly increased. Our citizensoldiers under present conditions have reached a stage of developmentbeyond which they can not reasonably be asked to go without further directassistance in the form of pay from the Federal Government. On the otherhand, such pay from the National Treasury would not be justified unless itproduced a proper equivalent in additional efficiency on the part of theNational Guard. The Organized Militia to-day can not be ordered outside ofthe limits of the United States, and thus can not lawfully be used forgeneral military purposes. The officers and men are ambitious and eager tomake themselves thus available and to become an efficient national reserveof citizen soldiery. They are the only force of trained men, other than theRegular Army, upon which we can rely. The so-called militia pay bill, inthe form agreed on between the authorities of the War Department and therepresentatives of the National Guard, in my opinion adequately meets theseconditions and offers a proper return for the pay which it is proposed togive to the National Guard. I believe that its enactment into law would bea very long step toward providing this Nation with a first line of citizensoldiery, upon which its main reliance must depend in case of any nationalemergency. Plans for the organization of the National Guard into tacticaldivisions, on the same lines as those adopted for the Regular Army, arebeing 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 warin the past it has always been necessary, and in such a war in the futureit doubtless will be necessary, for the Nation to depend, in addition tothe 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 aforce. There is now pending in Congress, however, a bill which makes suchprovision, and which I believe is admirably adapted to meet the exigencieswhich would be presented in case of war. The passage of the bill would notentail a dollar's expense upon the Government at this time or in the futureuntil war comes. But if war comes the methods therein directed are inaccordance with the best military judgment as to what they ought to be, andthe act would prevent the necessity for a discussion of any legislation andthe delays incident to its consideration and adoption. I earnestly urge itspassage. 

CONSOLIDATION OF THE SUPPLY CORPS

The Army appropriation act of 191:2 also carried legislation for theconsolidation of the Quartermaster's Department, the SubsistenceDepartment, and the Pay Corps into a single supply department, to be knownas the Quartermaster's Corps. It also provided for the organization of aspecial force of enlisted men, to be known as the Service Corps, graduallyto replace many of the civilian employees engaged in the manual labornecessary in every army. I believe that both of these enactments willimprove the administration of our military establishment. The consolidationof the supply corps has already been effected, and the organization of theservice corps is being put into effect. 

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

PORTO RICO

Porto Rico continues to show notable progress, both commercially and in thespread of education. Its external commerce has increased 17 per cent overthe preceding year, bringing the total value up to $92, 631, 886, or morethan five times the value of the commerce of the island in 1901. During theyear 160, 657 Pupils were enrolled in the public schools, as against 145, 525for the preceding year, and as compared with 26, 000 for the first year ofAmerican administration. Special efforts are under way for the promotion ofvocational and industrial training, the need of which is particularlypressing in the island. When the bubonic plague broke out last June, thequick and efficient response of the people of Porto Rico to the demands ofmodern sanitation was strikingly shown by the thorough campaign which wasinstituted against the plague and the hearty public opinion which supportedthe Government's efforts to check its progress and to prevent itsrecurrence. 

The failure thus far to grant American citizenship continues to be the onlyground of dissatisfaction. The bill conferring such citizenship has passedthe 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 thedemand for citizenship is just, and that it is amply earned by sustainedloyalty on the part of the inhabitants of the island. But it should beremembered that the demand must be, and in the minds of most Porto Ricansis, entirely disassociated from any thought of statehood. I believe that nosubstantial approved public opinion in the United States or in Porto Ricocontemplates statehood for the island as the ultimate form of relationsbetween us. I believe that the aim to be striven for is the fullestpossible allowance of legal and fiscal self-government, with Americancitizenship as to the bond between us; in other words, a relation analogousto the present relation between Great Britain and such self-governingcolonies as Canada and Australia. This would conduce to the fullest andmost self-sustaining development of Porto Rico, while at the same time itwould grant her the economic and political benefits of being under theAmerican flag. 

PHILIPPINES

A bill is pending in Congress which revolutionizes the carefully worked outscheme of government under which the Philippine Islands are now governedand which proposes to render them virtually autonomous at once andabsolutely independent in eight years. Such a proposal can only be foundedon the assumption that we have now discharged our trusteeship to theFilipino people and our responsibility for them to the world, and that theyare now prepared for self-government as well as national sovereignty. Athorough and unbiased knowledge of the facts clearly shows that theseassumptions are absolutely without justification. As to this, I believethat there is no substantial difference of opinion among any of those whohave had the responsibility of facing Philippine problems in theadministration of the islands, and I believe that no one to whom the futureof this people is a responsible concern can countenance a policy fraughtwith the direst consequences to those on whose behalf it is ostensiblyurged. 

In the Philippine Islands we have embarked upon an experiment unprecedentedin dealing with dependent people. We are developing there conditionsexclusively for their own welfare. We found an archipelago containing 24tribes and races, speaking a great variety of languages, and with apopulation over 80 per cent of which could neither read nor write. Throughthe unifying forces of a common education, of commercial and economicdevelopment, and of gradual participation in local self-government we areendeavoring to evolve a homogeneous people fit to determine, when the timearrives, their own destiny. We are seeking to arouse a national spirit andnot, as under the older colonial theory, to suppress such a spirit. Thecharacter of the work we have been doing is keenly recognized in theOrient, and our success thus far followed with not a little envy by thosewho, initiating the same policy, find themselves hampered by conditionsgrown up in earlier days and under different theories of administration. But our work is far from done. Our duty to the Filipinos is far fromdischarged. Over half a million Filipino students are now in the Philippineschools helping to mold the men of the future into a homogeneous people, but there still remain more than a million Filipino children of school ageyet to be reached. Freed from American control the integrating forces of acommon education and a common language will cease and the educationalsystem now well started will slip back into inefficiency and disorder. 

An enormous increase in the commercial development of the islands has beenmade since they were virtually granted full access to our markets threeyears ago, with every prospect of increasing development and diversifiedindustries. Freed from American control such development is bound todecline. Every observer speaks of the great progress in public works forthe benefit of the Filipinos, of harbor improvements, of roads andrailways, of irrigation and artesian wells, public buildings, and bettermeans 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. Wholevillages and towns are still without means of communication other thanalmost impassable roads and trails. Even the great progress in sanitation, which has successfully suppressed smallpox, the bubonic plague, and Asiaticcholera, has found the cause of and a cure for beriberi, has segregated thelepers, has helped to make Manila the most healthful city in the Orient, and to free life throughout the whole archipelago from its former dreaddiseases, is nevertheless incomplete in many essentials of permanence insanitary policy. Even more remains to be accomplished. If freed fromAmerican control sanitary progress is bound to be arrested and all that hasbeen achieved likely to be lost. 

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

If the task we have undertaken is higher than that assumed by othernations, its accomplishment must demand even more patience. We must notforget that we found the Filipinos wholly untrained in government. Up toour advent all other experience sought to repress rather than encouragepolitical power. It takes long time and much experience to ingrainpolitical habits of steadiness and efficiency. Popular self-governmentultimately must rest upon common habits of thought and upon a reasonablydeveloped public opinion. No such foundations for self-government, let aloneindependence are now present in the Philippine Islands. Disregarding eventheir racial heterogeneity and the lack of ability to think as a nation, itis sufficient to point out that under liberal franchise privileges onlyabout 3 per cent of the Filipinos vote and only 5 per cent of the peopleare said to read the public press. To confer independence upon theFilipinos now is, therefore, to subject the great mass of their people tothe dominance of an oligarchical and, probably, exploiting minority. Such acourse 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 havethus far followed; to guide the Filipinos into self-sustaining pursuits; tocontinue the cultivation of sound political habits through education andpolitical practice; to encourage the diversification of industries, and torealize the advantages of their industrial education by conservativelyapproved cooperative methods, at once checking the dangers of concentratedwealth and building up a sturdy, independent citizenship. We should do allthis with a disinterested endeavor to secure for the Filipinos economicindependence and to fit them for complete self-government, with the powerto decide eventually, according to their own largest good, whether suchself-government shall be accompanied by independence. A present declarationeven of future independence would retard progress by the dissension anddisorder it would arouse. On our part it would be a disingenuous attempt, under the guise of conferring a benefit on them, to relieve ourselves fromthe heavy and difficult burden which thus far we have been bravely andconsistently sustaining. It would be a disguised policy of scuttle. Itwould make the helpless Filipino the football of oriental politics, tinderthe protection of a guaranty of their independence, which we would bepowerless to enforce. 

REGULATION OF WATER POWER

There are pending before Congress a large number of bills proposing togrant privileges of erecting dams for the purpose of creating water powerin our navigable rivers. The pendency of these bills has brought out animportant defect in the existing general dam act. That act does not, in myopinion, grant sufficient power to the Federal Government in dealing withthe construction of such dams to exact protective conditions in theinterest of navigation. It does not permit the Federal Government, as acondition of its permit, to require that a part of the value thus createdshall be applied to the further general improvement and protection of thestream. I believe this to be one of the most important matters of internalimprovement now confronting the Government. Most of the navigable rivers ofthis country are comparatively long and shallow. In order that they may bemade fully useful for navigation there has come into vogue a method ofimprovement known as canalization, or the slack-water method, whichconsists in building a series of dams and locks, each of which will createa long pool of deep navigable water. At each of these dams there is usuallycreated also water power of commercial value. If the water power thuscreated can be made available for the further improvement of navigation inthe stream, it is manifest that the improvement will be much more quicklyeffected on the one hand, and, on the other, that the burden on the generaltaxpayers of the country will be very much reduced. Private interestsseeking permits to build water-power dams in navigable streams usually urgethat they thus improve navigation, and that if they do not impairnavigation they should be allowed to take for themselves the entire profitsof the water-power development. Whatever they may do by way of relievingthe Government of the expense of improving navigation should be given dueconsideration, but it must be apparent that there may be a profit beyond areasonably liberal return upon the private investment which is a potentialasset of the Government in carrying out a comprehensive policy of waterwaydevelopment. It is no objection to the retention and use of such an assetby the Government that a comprehensive waterway policy will include theprotection and development of the other public uses of water, which can notand should not be ignored in making and executing plans for the protectionand development of navigation. It is also equally clear that inasmuch asthe water power thus created is or may be an incident of a general schemeof waterway improvement within the constitutional jurisdiction of theFederal Government, the regulation of such water power lies also withinthat jurisdiction. In my opinion constructive statesmanship requires thatlegislation should be enacted which will permit the development ofnavigation in these great rivers to go hand in hand with the utilization ofthis by-product of water power, created in the course of the sameimprovement, and that the general dam act should be so amended as to makethis possible. I deem it highly important that the Nation should adopt aconsistent and harmonious treatment of these water-power projects, whichwill preserve for this purpose their value to the Government, whose rightit is to grant the permit. Any other policy is equivalent to throwing awaya most valuable national asset. 

THE PANAMA CANAL

During the past year the work of construction upon the canal has progressedmost satisfactorily. About 87 per cent of the excavation work has beencompleted, and more than 93 per cent of the concrete for all the locks isin place. In view of the great interest which has been manifested as tosome 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 tonote that none of the slides which occurred during this year would haveinterfered with the passage of the ships had the canal, in fact, been inoperation, and when the slope pressures will have been finally adjusted andthe growth of vegetation will minimize erosion in the banks of the cut, theslide problem will be practically solved and an ample stability assured forthe 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 shippingduring the latter half of 1913. No fixed date can as yet be set, butshipping interests will be advised as soon as assurances can be given thatvessels 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 forexecutive responsibility in the control of the canal and the government ofthe Canal Zone. The problem of most efficient organization is receivingcareful consideration, so that a scheme of organization and control bestadapted to the conditions of the canal may be formulated and put inoperation as expeditiously as possible. Acting tinder the authorityconferred on me by Congress, I have, by Executive proclamation, promulgatedthe following schedule of tolls for ships passing through the canal, basedupon the thorough report of Emory R. Johnson, special commissioner ontraffic and tolls:

I. On merchant vessels carrying passengers or cargo, $1. 20 per net vesselton-each 100 cubic feet-of actual earning capacity. 2. On vessels inballast without passengers or cargo, 40 per cent less than the rate oftolls for vessels with passengers or cargo. 3. Upon naval vessels, otherthan transports, colliers, hospital ships, and supply ships, 50 cents perdisplacement ton. 4. Upon Army and Navy transports, colliers, hospitalships, and supply ships, $1. 20 per net ton, the vessels to be measured bythe same rules as are employed in determining the net tonnage of merchantvessels. Rules for the determination of the tonnage upon which toll chargesare based are now in course of preparation and will be promulgated in dueseason. 

PANAMA CANAL TREATY

The proclamation which I have issued in respect to the Panama Canal tollsis in accord with the Panama Canal act passed by this Congress August 24, 1912. We have been advised that the British Government has prepared aprotest against the act and its enforcement in so far as it relieves fromthe payment of tolls American ships engaged in the American coastwise tradeon the ground that it violates British rights tinder the Hay-Pauncefotetreaty concerning the Panama Canal. When the protest is presented, it willbe promptly considered and an effort made to reach a satisfactoryadjustment 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 theparticular conditions of the zone, is awaiting adequate appropriation byCongress for the payment of claims arising thereunder. I urge that speedyprovision be made in order that we may install upon the zone a system ofsettling claims for injuries in best accord with modern humane, social, andindustrial theories. 

PROMOTION FOR COL. GOETHALS

As the completion of the canal grows nearer, and as the wonderful executivework of Col. Goethals becomes more conspicuous in the eyes of the countryand of the world, it seems to me wise and proper to make provision by lawfor such reward to him as may be commensurate with the service that he hasrendered to his country. I suggest that this reward take the form of anappointment of Col. Goethals as a major general in the Army of the UnitedStates, and that the law authorizing such appointment be accompanied with aprovision permitting his designation as Chief of Engineers upon theretirement of the present incumbent of that office. 

NAVY DEPARTMENT

The Navy of the United States is in a greater state of efficiency and ismore powerful than it has ever been before, but in the emulation whichexists between different countries in respect to the increase of naval andmilitary armaments this condition is not a permanent one. In view of themany improvements and increases by foreign Governments the slightest halton our part in respect to new construction throws us back and reduces usfrom a naval power of the first rank and places us among the nations of thesecond rank. In the past 15 years the Navy has expanded rapidly and yet farless rapidly than our country. From now on reduced expenditures in the Navymeans reduced military strength. The world's history has shown theimportance of sea power both for adequate defense and for the support ofimportant and definite policies. 

I had the pleasure of attending this autumn a mobilization of the AtlanticFleet, and was glad to observe and note the preparedness of the fleet forinstant action. The review brought before the President and the Secretaryof the Navy a greater and more powerful collection of vessels than had everbeen gathered in American waters. The condition of the fleet and of theofficers and enlisted men and of the equipment of the vessels entitledthose in authority to the greatest credit. 

I again commend to Congress the giving of legislative sanction to theappointment of the naval aids to the Secretary of the Navy. These aids andthe council of aids appointed by the Secretary of the Navy to assist him inthe conduct of his department have proven to be of the highest utility. They have furnished an executive committee of the most skilled navalexperts, who have coordinated the action of the various bureaus in theNavy, and by their advice have enabled the Secretary to give anadministration at the same time economical and most efficient. Never beforehas the United States had a Navy that compared in efficiency with itspresent one, but never before have the requirements with respect to navalwarfare been higher and more exacting than now. A year ago Congress refusedto appropriate for more than one battleship. In this I think a greatmistake of policy was made, and I urgently recommend that this Congressmake up for the mistake of the last session by appropriations authorizingthe construction of three battleships, in addition to destroyers, fuelships, and the other auxiliary vessels as shown in the building program ofthe general board. We are confronted by a condition in respect to thenavies of the world which requires us, if we would maintain our Navy as aninsurance of peace, to augment our naval force by at least two battleshipsa year and by battle cruisers, gunboats, torpedo destroyers, and submarineboats in a proper proportion. We have no desire for war. We would go as faras any nation in the world to avoid war, but we are a world power. Ourpopulation, our wealth, our definite policies, our responsibilities in thePacific and the Atlantic, our defense of the Panama Canal, together withour enormous world trade and our missionary outposts on the frontiers ofcivilization, require us to recognize our position as one of the foremostin the family of nations, and to clothe ourselves with sufficient navalpower to give force to our reasonable demands, and to give weight to ourinfluence in those directions of progress that a powerful Christian nationshould advocate. 

I observe that the Secretary of the Navy devotes some space to a change inthe disciplinary system in vogue in that branch of the service. I thinkthere is nothing quite so unsatisfactory to either the Army or the Navy asthe severe punishments necessarily inflicted by court-martial fordesertions and purely military offenses, and I am glad to hear that theBritish have solved this important and difficult matter in a satisfactoryway. I commend to the consideration of Congress the details of the newdisciplinary system, and recommend that laws be passed putting the sameinto force both in the Army and the Navy. 

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

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

DEPARTMENT OF JUSTICE

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

The prosecution of trusts under the Sherman antitrust law has gone onwithout restraint or diminution, and decrees similar to those entered inthe 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 verystrongly convinced that a steady, consistent course in this regard, with acontinuing of Supreme Court decisions upon new phases of the trust questionnot already finally decided is going to offer a solution of thismuch-discussed and troublesome issue in a quiet, calm, and judicial way, without any radical legislation changing the governmental policy in regardto combinations now denounced by the Sherman antitrust law. I have alreadyrecommended as an aid in this matter legislation which would declareunlawful certain well-known phases of unfair competition in interstatetrade, and I have also advocated voluntary national incorporation for thelarger industrial enterprises, with provision for a closer supervision bythe Bureau of Corporations, or a board appointed for the purpose, so as tomake more certain compliance with the antitrust law on the one hand and togive greater security to the stockholders against possible prosecutions onthe other. I believe, however, that the orderly course of litigation in thecourts and the regular prosecution of trusts charged with the violation ofthe antitrust law is producing among business men a clearer and clearerperception of the line of distinction between business that is to beencouraged and business that is to be condemned, and that in this quiet waythe question of trusts can be settled and competition retained as aneconomic force to secure reasonableness in prices and freedom andindependence in trade. 

REFORM OF COURT PROCEDURE

I am glad to bring to the attention of Congress the fact that the SupremeCourt has radically altered the equity rules governing the procedure on theequity side of all Federal courts, and though, as these changes have notbeen yet put in practice so as to enable us to state from actual resultswhat the reform will accomplish, they are of such a character that we canreasonably prophesy that they will greatly reduce the time and cost oflitigation in such courts. The court has adopted many of the shortermethods of the present English procedure, and while it may take a littlewhile for the profession to accustom itself to these methods, it is certaingreatly to facilitate litigation. The action of the Supreme Court has beenso drastic and so full of appreciation of the necessity for a great reformin court procedure that I have no hesitation in following up this actionwith a recommendation which I foreshadowed in my message of three yearsago, that the sections of the statute governing the procedure in theFederal courts on the common-law side should be so amended as to give tothe Supreme Court the same right to make rules of procedure in common lawas they have, since the beginning of the court, exercised in equity. I donot doubt that a full consideration of the subject will enable the courtwhile giving effect to the substantial differences in right and remedybetween the system of common law and the system of equity so to unite thetwo procedures into the form of one civil action and to shorten theprocedure in such civil action as to furnish a model to all the Statecourts exercising concurrent jurisdiction with the Federal courts of firstinstance. 

Under the statute now in force the common-law procedure in each Federalcourt is made to conform to the procedure in the State in which the courtis held. In these days, when we should be making progress in courtprocedure, such a conformity statute makes the Federal method too dependentupon the action of State legislatures. I can but think it a greatopportunity for Congress to intrust to the highest tribunal in thiscountry, evidently imbued with a strong spirit in favor of a reform ofprocedure, the power to frame a model code of procedure, which, whilepreserving all that is valuable and necessary of the rights and remedies atcommon law and in equity, shall lessen the burden of the poor litigant to aminimum in the expedition and cheapness with which his cause can be foughtor defended through Federal courts to final judgment. 

WORKMAN'S COMPENSATION ACT

The workman's compensation act reported by the special commission appointedby Congress and the Executive, which passed the Senate and is now pendingin the House, the passage of which I have in previous messages urged uponCongress, I venture again to call to its attention. The opposition to itwhich developed in the Senate, but which was overcome by a majority in thatbody, seemed to me to grow out rather of a misapprehension of its effectthan of opposition to its principle. I say again that I think no act canhave a better effect directly upon the relations between the employer andemployee than this act applying to railroads and common carriers of aninterstate character, and I am sure that the passage of the act wouldgreatly relieve the courts of the heaviest burden of litigation that theyhave, and would enable them to dispatch other business with a speed neverbefore attained in courts of justice in this country. 

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

This is the third of a series of messages in which I have brought to theattention of the Congress the important transactions of the Government ineach of its departments during the last year and have discussed neededreforms. 

HEADS OF DEPARTMENTS SHOULD HAVE SEATS ON THE FLOOR OF CONGRESS

I recommend the adoption of legislation which shall make it the duty ofheads of departments--the members of the President's Cabinet--at convenienttimes to attend the session of the House and the Senate, which shallprovide seats for them in each House, and give them the opportunity to takepart in all discussions and to answer questions of which they have had duenotice. The rigid holding apart of the executive and the legislativebranches of this Government has not worked for the great advantage ofeither. There has been much lost motion in the machinery, due to the lackof cooperation and interchange of views face to face between therepresentatives of the Executive and the Members of the two legislativebranches of the Government. It was never intended that they should beseparated in the sense of not being in constant effective touch andrelationship to each other. The legislative and the executive each performsits own appropriate function, but these functions must be coordinated. Timeand time again debates have arisen in each House upon issues which theinformation of a particular department head would have enabled him, ifpresent, to end at once by a simple explanation or statement. Time and timeagain a forceful and earnest presentation of facts and arguments by therepresentative of the Executive whose duty it is to enforce the law wouldhave brought about a useful reform by amendment, which in the absence ofsuch a statement has failed of passage. I do not think I am mistaken insaying that the presence of the members of the Cabinet on the floor of eachHouse would greatly contribute to the enactment of beneficial legislation. Nor would this in any degree deprive either the legislative or theexecutive of the independence which separation of the two branches has beenintended to promote. It would only facilitate their cooperation in thepublic interest. 

On the other hand, I am sure that the necessity and duty imposed upondepartment heads of appearing in each house and in answer to searchingquestions, 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 theCabinet to closer attention to the details of his department, to greaterfamiliarity with its needs, and to greater care to avoid the just criticismwhich the answers brought out in questions put and discussions arisingbetween the Members of either House and the members of the Cabinet mayproperly evoke. 

Objection is made that the members of the administration having no votecould exercise no power on the floor of the House, and could not assumethat attitude of authority and control which the English parliamentaryGovernment have and which enables them to meet the responsibilities theEnglish system thrusts upon them. I agree that in certain respects it wouldbe more satisfactory if members of the Cabinet could at the same time beMembers of both Houses, with voting power, but this is impossible under oursystem; and while a lack of this feature may detract from the influence ofthe department chiefs, it will not prevent the good results which I havedescribed above both in the matter of legislation and in the matter ofadministration. The enactment of such a law would be quite within the powerof Congress without constitutional amendment, and it has such possibilitiesof usefulness that we might well make the experiment, and if we aredisappointed the misstep can be easily retraced by a repeal of the enablinglegislation. 

This is not a new proposition. In the House of Representatives, in theThirty-eighth Congress, the proposition was referred to a select committeeof seven Members. The committee made an extensive report, and urged theadoption of the reform. The report showed that our history had not beenwithout illustration of the necessity and the examples of the practice bypointing out that in early days Secretaries were repeatedly called to thepresence of either Rouse for consultation, advice, and information. It alsoreferred to remarks of Mr. Justice Story in his Commentaries on theConstitution, 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 theFirst Session of the Thirty-eighth Congress, April 6, 1864. 

Again, on February 4, 1881, a select committee of the Senate recommendedthe passage of a similar bill, and made a report, In which, while approvingthe separation of the three branches, the executive, legislative, andjudicial, they point out as a reason for the proposed change that, althoughhaving a separate existence, the branches are "to cooperate, each with theother, as the different members of the human body must cooperate, with eachother in order to form the figure and perform the duties of a perfectman. "

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

If it should appear by actual experience that the heads of departments infact have not time to perform the additional duty imposed on them by thisbill, the force in their offices should be increased or the dutiesdevolving on them personally should be diminished. An undersecretary shouldbe appointed to whom could be confided that routine of administration whichrequires only order and accuracy. The principal officers could then confinetheir attention to those duties which require wise discretion andintellectual activity. Thus they would have abundance of time for theirduties under this bill. Indeed, your committee believes that the publicinterest would be subserved if the Secretaries were relieved of theharassing cares of distributing clerkships and closely supervising the meremachinery of the departments. Your committee believes that the adoption ofthis bill and the effective execution of its provisions will be the firststep toward a sound civil-service reform which will secure a larger wisdomin 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 difficultto mention the names of higher authority in the practical knowledge of ourGovernment than those which are appended to this report. 

POSTAL SAVINGS BANK SYSTEM

The Postal Savings Bank System has been extended so that it now includes4, 004 fourth-class post offices', as well as 645 branch offices andstations in the larger cities. There are now 12, 812 depositories at whichpatrons of the system may open accounts. The number of depositors is300, 000 and the amount of their deposits is approximately $28, 000, 000, notincluding $1, 314, 140 which has been with drawn by depositors for thepurpose of buying postal savings bonds. Experience demonstrates the valueof dispensing with the pass-book and introducing in its place a certificateof deposit. The gross income of the postal savings system for the fiscalyear ending June 30, 1913, will amount to $700, 000 and the interest payableto 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 payinginterest and expenses. It is estimated, however, that when the depositshave reached the sum Of $50, 000, 000, which at the present rate they soonwill do, the system will be self-sustaining. By law the postal savingsfunds deposited at each post office are required to be redeposited in localbanks. State and national banks to the number of 7, 357 have qualified asdepositories for these funds. Such deposits are secured by bondsaggregating $54, 000, 000. Of this amount, $37, 000, 000 represent municipalbonds. 

PARCEL POST

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

CLASSIFICATION OF POSTMASTERS

A trial, during the past three years, of the system of classifyingfourth-class postmasters in that part of the country lying between theMississippi River on the west, Canada on the north, the Atlantic Ocean onthe east, and Mason and Dixon's line on the south has been sufficientlysatisfactory to justify the postal authorities in recommending theextension of the order to include all the fourth-class postmasters in thecountry. 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 ofOctober 15 I issued such an order which affected 36, 000 postmasters. By theorder the post offices were divided into groups A and B. Group A includesall postmasters whose compensation is $500 or more, and group B those whosecompensation is less than that sum. Different methods are pursued in theselection of the postmasters for group A and group, B. Criticism has beenmade 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 theelection and in the interest of efficient public service. I have severaltimes requested Congress to give me authority to put first-, second-, andthird-class postmasters, and all other local officers, includinginternal-revenue officers, customs officers, United States marshals, andthe local agents of the other departments under the classification of thecivil-service law by taking away the necessity for confirming suchappointments by the Senate. I deeply regret the failure of Congress tofollow these recommendations. The change would have taken out of politicspractically every local officer and would have entirely cured the evilsgrowing out of what under the present law must always remain a remnant ofthe spoils system. 

COMPENSATION TO RAILWAYS FOR CARRYING MAILS

It is expected that the establishment of a parcel post on January 1st willlargely increase the amount of mail matter to be transported by therailways, and Congress should be prompt to provide a way by which they mayreceive the additional compensation to which they will be entitled. ThePostmaster General urges that the department's plan for a completereadjustment of the system of paying the railways for carrying the mails beadopted, substituting space for weight as the principal factor in fixingcompensation. Under this plan it will be possible to determine withoutdelay what additional payment should be made on account of the parcel post. The Postmaster General's recommendation is based on the results of afar-reaching investigation begun early in the administration with theobject of determining what it costs the railways to carry the mails. Thestatistics obtained during the course of the inquiry show that while manyof the railways, and particularly the large systems, were making profitsfrom mail transportations, certain of the lines were actually carrying themails at a loss. As a result of the investigation the department, aftergiving the subject careful consideration, decided to urge the abandonmentof the present plan of fixing compensation on the basis of the weight ofthe mails carried, a plan that has proved to be exceedingly expensive andin other respects unsatisfactory. Under the method proposed the railwaycompanies will annually submit to the department reports showing what itcosts them to carry the mails, and this cost will be apportioned on thebasis of the car space engaged, payment to be allowed at the rate thusdetermined in amounts that will cover the cost and a reasonable profit. Ifa railway is not satisfied with the manner in which the departmentapportions the cost in fixing compensation, it is to have the right, tinderthe new plan, of appealing to the Interstate Commerce Commission. Thisfeature of the proposed law would seem to insure a fair treatment of therailways. It is hoped that Congress will give the matter immediateattention and that the method of compensation recommended by the departmentor some other suitable plan will be promptly authorized. 

DEPARTMENT OF THE INTERIOR

The Interior Department, in the problems of administration included withinits jurisdiction, presents more difficult questions than any other. Thishas been due perhaps to temporary causes of a political character, but moreespecially to the inherent difficulty in the performance of some of thefunctions which are assigned to it. Its chief duty is the guardianship ofthe public domain and the disposition of that domain to private ownershipunder homestead, mining, and other laws, by which patents from theGovernment to the individual are authorized on certain conditions. Duringthe last decade the public seemed to become suddenly aware that a verylarge part of its domain had passed from its control into privateownership, under laws not well adapted to modern conditions, and also thatin the doing of this the provisions of existing law and regulations adoptedin accordance with law had not been strictly observed, and that in thetransfer of title much fraud had intervened, to the pecuniary benefit ofdishonest persons. There arose thereupon a demand for conservation of thepublic domain, its protection against fraudulent diminution, and thepreservation of that part of it from private acquisition which it seemednecessary to keep for future public use. The movement, excellent in theintention which prompted it, and useful in its results, has neverthelesshad some bad effects, which the western country has recently been feelingand in respect of which there is danger of a reaction toward older abusesunless we can attain the golden mean, which consists in the prevention ofthe mere exploitation of the public domain for private purposes while atthe same, time facilitating its development for the benefit of the localpublic. 

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

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

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

The condition of health of the Indian and the prevalence in the tribes ofcurable diseases has been exploited recently in the press. In a message toCongress at its last session I brought this subject to its attention andinvited a special appropriation, in order that our facilities forovercoming diseases among the Indians might be properly increased, but noaction was then taken by Congress on the subject, nor has suchappropriation been made since. 

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

DEPARTMENT OF AGRICULTURE

The far-reaching utility of the educational system carried on by theDepartment of Agriculture for the benefit of the farmers of our countrycalls for no elaboration. Each year there is a growth in the variety offacts which it brings out for the benefit of the farmer, and each yearconfirms the wisdom of the expenditure of the appropriations made for thatdepartment. 

PURE-FOOD LAW

The Department of Agriculture is charged with the execution of thepure-food law. The passage of this encountered much opposition frommanufacturers and others who feared the effect upon their business of theenforcement of its provisions. The opposition aroused the just indignationof the public, and led to an intense sympathy with the severe and rigidenforcement of the provisions of the new law. It had to deal in manyinstances with the question whether or not products of large businessenterprises, in the form of food preparations, were deleterious to thepublic health; and while in a great majority of instances this issue waseasily determinable, there were not a few cases in which it was hard todraw the line between a useful and a harmful food preparation. In caseslike this when a decision involved the destruction of great businessenterprises representing the investment of large capital and theexpenditure of great energy and ability, the danger of serious injusticewas very considerable in the enforcement of a new law under the spur ofgreat public indignation. The public officials charged with executing thelaw might do injustice in heated controversy through unconscious pride ofopinion and obstinacy of conclusion. For this reason President Rooseveltfelt 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 reviewhad of a decision of the Bureau of Chemistry in the AgriculturalDepartment. I heartily agree that it was wise to create this board in orderthat injustice might not be done. The questions which arise are notgenerally those involving palpable injury to health, but they are upon thenarrow and doubtful line in respect of which it is better to be in someerror not dangerous than to be radically destructive. I think that the timehas come for Congress to recognize the necessity for some such tribunal ofappeal and to make specific statutory provision for it. While we arestruggling to suppress an evil of great proportions like that of impurefood, we must provide machinery in the law itself to prevent its becomingan instrument of oppression, and we ought to enable those whose business isthreatened with annihilation to have some tribunal and some form of appealin which they have a complete day in court. 

AGRICULTURAL CREDITS

I referred in my first message to the question of improving the system ofagricultural credits. The Secretary of Agriculture has made aninvestigation into the matter of credits in this country, and I commend aconsideration of the information which through his agents he has been ableto 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 thequestion than we have heretofore had. 

DEPARTMENT OF COMMERCE AND LABOR

I commend to Congress an examination of the report of the Secretary ofCommerce and Labor, and especially that part in which he discusses theoffice of the Bureau of Corporations, the value to commerce of a proposedtrade commission, and the steps which he has taken to secure theorganization of a national chamber of commerce. I heartily commend his viewthat the plan of a trade commission which looks to the fixing of prices isaltogether impractical and ought not for a moment to be considered as apossible solution of the trust question. 

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

PANAMA-PACIFIC INTERNATIONAL EXPOSITION

In conformity with a joint resolution of Congress, an Executiveproclamation was issued last February, inviting the nations of the world toparticipate in the Panama-Pacific International Exposition to be held atSan Francisco to celebrate the construction of the Panama, Canal. Asympathetic response was immediately forthcoming, and several nations havealready selected the sites for their buildings. In furtherance of myinvitation, a special commission visited European countries during the pastsummer, and received assurance of hearty cooperation in the task ofbringing together a universal industrial, military, and naval display on anunprecedented scale. It is evident that the exposition will be an accuratemirror of the world's activities as they appear 400 years after the date ofthe discovery of the Pacific Ocean. 

It is the duty of the United States to make the nations welcome at SanFrancisco and to facilitate such acquaintance between them and ourselves aswill promote the expansion of commerce and familiarize the world with thenew trade route through the Panama Canal. The action of the Stategovernments and individuals assures a comprehensive exhibit of theresources of this country and of the progress of the people. Thisparticipation by State and individuals should be supplemented by anadequate showing of the varied and unique activities of the NationalGovernment. The United States can not with good grace invite foreigngovernments to erect buildings and make expensive exhibits while itselfrefusing to participate. Nor would it be wise to forego the opportunity tojoin with other nations in the inspiring interchange of ideas tending topromote intercourse, friendship, and commerce. It is the duty of theGovernment to foster and build up commerce through the canal, just as itwas the duty of the Government to construct it. 

I earnestly recommend the appropriation at this session of such a sum aswill enable the United States to construct a suitable building, install agovernmental exhibit, and otherwise participate in the Panama-PacificInternational Exposition in a manner commensurate with the dignity of anation whose guests are to be the people of the world. I recommend alsosuch legislation as will facilitate the entry of material intended forexhibition and protect foreign exhibitors against infringement of patentsand the unauthorized copying of patterns and designs. All aliens sent toSan Francisco to construct and care for foreign buildings and exhibitsshould 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 governmentalstructures constitutes the chief beauty and interest of the city. Thepublic grounds are extensive, and the opportunities for improving the cityand making it still more attractive are very great. Under a plan adoptedsome years ago, one half the cost of running the city is paid by taxationupon the property, real and personal, of the citizens and residents, andthe other half is borne by the General Government. The city is expanding ata remarkable rate, and this can only be accounted for by the coming herefrom other parts of the country of well-to-do people who, having finishedtheir business careers elsewhere, build and make this their permanent placeof residence. 

On the whole, the city as a municipality is very well governed. It is welllighted, the water supply is good, the streets are well paved, the policeforce is well disciplined, crime is not flagrant, and while it has purlieusand centers of vice, like other large cities, they are not exploited, theydo not exercise any influence or control in the government of the city, andthey are suppressed in as far as it has been found practicable. Municipalgraft is inconsiderable. There are interior courts in the city that arenoisome and centers of disease and the refuge of criminals, but Congresshas begun to clean these out, and progress has been made in the case of themost notorious of these, which is known as "Willow Tree Alley. " Thismovement should continue. 

The mortality for the past year was at the rate Of 17. 80 per 1, 000 of bothraces; among the whites it was 14. 61 per thousand, and among the blacks26. 12 per thousand. These are the lowest mortality rates ever recorded inthe District. 

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

Without undue criticism of the present street railway accommodations, itcan be truly said that under the spur of a public utilities commission theymight be substantially improved. 

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

From time to time there is considerable agitation in Washington in favor ofgranting the citizens of the city the franchise and constituting anelective government. I am strongly opposed to this change. The history ofWashington discloses a number of experiments of this kind, which havealways been abandoned as unsatisfactory. The truth is this is a citygoverned by a popular body, to wit, the Congress of the United States, selected from the people of the United States, who own Washington. Thepeople who come here to live do so with the knowledge of the origin of thecity and the restrictions, and therefore voluntarily give up the privilegeof living in a municipality governed by popular vote. Washington is sounique in its origin and in its use for housing and localizing thesovereignty of the Nation that the people who live here must regard itspeculiar character and must be content to subject themselves to the controlof a body selected by all the people of the Nation. I agree that there arecertain inconveniences growing out of the government of a city by anational legislature like Congress, and it would perhaps be possible tolessen these by the delegation by Congress to the District Commissioners ofgreater legislative power for the enactment of local laws than they nowpossess, especially those of a police character. 

Every loyal American has a personal pride in the beauty of Washington andin its development and growth. There is no one with a proper appreciationof our Capital City who would favor a niggardly policy in respect toexpenditures from the National Treasury to add to the attractiveness ofthis city, which belongs to every citizen of the entire country, and whichno citizen visits without a sense of pride of ownership. We have hadrestored by a Commission of Fine Arts, at the instance of a committee ofthe Senate, the original plan of the French engineer L'Enfant for the cityof Washington, and we know with great certainty the course which theimprovement of Washington should take. Why should there be delay in makingthis improvement in so far as it involves the extension of the parkingsystem 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 havebeen approved, and nothing is wanting but the appropriations for thebeginning and completion of the structures. A hall of archives is alsobadly needed, but nothing has been done toward its construction, althoughthe land for it has long been bought and paid for. Plans have been made forthe union of Potomac Park with the valley of Rock Creek and Rock CreekPark, and the necessity for the connection between the Soldiers' Home andRock Creek Park calls for no comment. I ask again why there should be delayin carrying out these plans We have the money in the Treasury, the plansare national in their scope, and the improvement should be treated as anational project. The plan will find a hearty approval throughout thecountry. I am quite sure, from the information which I have, that, atcomparatively small expense, from that part of the District of Columbiawhich was retroceded to Virginia, the portion including the Arlingtonestate, Fort Myer, and the palisades of the Potomac can be acquired bypurchase and the jurisdiction of the State of Virginia over this land cededto the Nation. This ought to be done. 

The construction of the Lincoln Memorial and of a memorial bridge from thebase of the Lincoln Monument to Arlington would be an appropriate andsymbolic expression of the union of the North and the South at the Capitalof the Nation. I urge upon Congress the appointment of a commission toundertake these national improvements, and to submit a plan for theirexecution; and when the plan has been submitted and approved, and the workcarried out, Washington will really become what it ought to be--the mostbeautiful city in the world.