Last year a revolution against the established Government of Ecuador broke

out at the principal port of that Republic. Previous to this occurrence the

chief American interest in Ecuador, represented by the Guayaquil & Quito

Railway Co., incorporated in the United States, had rendered extensive

transportation and other services on account to the Ecuadorian Government,

the amount of which ran into a sum which was steadily increasing and which

the Ecuadorian Government had made no provision to pay, thereby threatening

to crush out the very existence of this American enterprise. When

tranquillity had been restored to Ecuador as a result of the triumphant

progress of the Government forces from Quito, this Government interposed

its good offices to the end that the American interests in Ecuador might be

saved from complete extinction. As a part of the arrangement which was

reached between the parties, and at the request of the Government of

Ecuador, I have consented to name an arbitrator, who, acting under the

terms of the railroad contract, with an arbitrator named by the Ecuadorian

Government, will pass upon the claims that have arisen since the

arrangement reached through the action of a similar arbitral tribunal in

1908.

In pursuance of a request made some time ago by the Ecuadorian Government,

the Department of State has given much attention to the problem of the

proper sanitation of Guayaquil. As a result a detail of officers of the

Canal Zone will be sent to Guayaquil to recommend measures that will lead

to the complete permanent sanitation of this plague and fever infected

region of that Republic, which has for so long constituted a menace to

health conditions on the Canal Zone. It is hoped that the report which this

mission will furnish will point out a way whereby the modicum of assistance

which the United States may properly lend the Ecuadorian Government may be

made effective in ridding the west coast of South America of a focus of

contagion to the future commercial current passing through the Panama

Canal.

In the matter of the claim of John Celestine Landreau against the

Government of Peru, which claim arises out of certain contracts and

transactions in connection with the discovery and exploitation of guano,

and which has been under discussion between the two Governments since 1874,

I am glad to report that as the result of prolonged negotiations, which

have been characterized by the utmost friendliness and good will on both

sides, the Department of State has succeeded in securing the consent of

Peru to the arbitration of the claim, and that the negotiations attending

the drafting and signature of a protocol submitting the claim to an

arbitral tribunal are proceeding with due celerity.

An officer of the American Public Health Service and an American sanitary

engineer are now on the way to Iquitos, in the employ of the Peruvian

Government, to take charge of the sanitation of that river port. Peru is

building a number of submarines in this country, and continues to show

every desire to have American capital invested in the Republic.

In July the United States sent undergraduate delegates to the Third

International Students Congress held at Lima, American students having been

for the first time invited to one of these meetings.

The Republic of Uruguay has shown its appreciation of American agricultural

and other methods by sending a large commission to this country and by

employing many American experts to assist in building up agricultural and

allied industries in Uruguay.

Venezuela is paying off the last of the claims the settlement of which was

provided for by the Washington protocols, including those of American

citizens. Our relations with Venezuela are most cordial, and the trade of

that Republic with the United States is now greater than with any other

country.

CENTRAL AMERICA AND THE CARIBBEAN

During the past summer the revolution against the administration which

followed the assassination of President Caceres a year ago last November

brought the Dominican Republic to the verge of administrative chaos,

without offering any guaranties of eventual stability in the ultimate

success of either party. In pursuance of the treaty relations of the United

States with the Dominican Republic, which were threatened by the necessity

of suspending the operation under American administration of the

customhouses on the Haitian frontier, it was found necessary to dispatch

special commissioners to the island to reestablish the customhouses and

with a guard sufficient to insure needed protection to the customs

administration. The efforts which have been made appear to have resulted in

the restoration of normal conditions throughout the Republic. The good

offices which the commissioners were able to exercise were instrumental in

bringing the contending parties together and in furnishing a basis of

adjustment which it is hoped will result in permanent benefit to the

Dominican people.

Mindful of its treaty relations, and owing to the position of the

Government of the United States as mediator between the Dominican Republic

and Haiti in their boundary dispute, and because of the further fact that

the revolutionary activities on the Haitian-Dominican frontier had become

so active as practically to obliterate the line of demarcation that had

been heretofore recognized pending the definitive settlement of the

boundary in controversy, it was found necessary to indicate to the two

island Governments a provisional de facto boundary line. This was done

without prejudice to the rights or obligations of either country in a final

settlement to be reached by arbitration. The tentative line chosen was one

which, under the circumstances brought to the knowledge of this Government,

seemed to conform to the best interests of the disputants. The border

patrol which it had been found necessary to reestablish for customs

purposes between the two countries was instructed provisionally to observe

this line.

The Republic of Cuba last May was in the throes of a lawless uprising that

for a time threatened the destruction of a great deal of valuable

property-much of it owned by Americans and other foreigners-as well as the

existence of the Government itself. The armed forces of Cuba being

inadequate to guard property from attack and at the same time properly to

operate against the rebels, a force of American marines was dispatched from

our naval station at Guantanamo into the Province of Oriente for the

protection of American and other foreign life and property. The Cuban

Government was thus able to use all its forces in putting down the

outbreak, which it succeeded in doing in a period of six weeks. The

presence of two American warships in the harbor of Habana during the most

critical period of this disturbance contributed in great measure to allay

the fears of the inhabitants, including a large foreign colony.

There has been under discussion with the Government of Cuba for some time

the question of the release by this Government of its leasehold rights at

Bahia Honda, on the northern coast of Cuba, and the enlargement, in

exchange therefor, of the naval station which has been established at

Guantanamo Bay, on the south. As the result of the negotiations thus

carried on an agreement has been reached between the two Governments

providing for the suitable enlargement of the Guantanamo Bay station upon

terms which are entirely fair and equitable to all parties concerned.

At the request alike of the Government and both political parties in

Panama, an American commission undertook supervision of the recent

presidential election in that Republic, where our treaty relations, and,

indeed, every geographical consideration, make the maintenance of order and

satisfactory conditions of peculiar interest to the Government of the

United States. The elections passed without disorder, and the new

administration has entered upon its functions.

The Government of Great Britain has asked the support of the United States

for the protection of the interests of British holders of the foreign

bonded debt of Guatemala. While this Government is hopeful of an

arrangement equitable to the British bondholders, it is naturally unable to

view the question apart from its relation to the broad subject of financial

stability in Central America, in which the policy of the United States does

not permit it to escape a vital interest. Through a renewal of negotiations

between the Government of Guatemala and American bankers, the aim of which

is a loan for the rehabilitation of Guatemalan finances, a way appears to

be open by which the Government of Guatemala could promptly satisfy any

equitable and just British claims, and at the same time so improve its

whole financial position as to contribute greatly to the increased

prosperity of the Republic and to redound to the benefit of foreign

investments and foreign trade with that country. Failing such an

arrangement, it may become impossible for the Government of the United

States to escape its obligations in connection with such measures as may

become necessary to exact justice to legitimate foreign claims.

In the recent revolution in Nicaragua, which, it was generally admitted,

might well have resulted in a general Central American conflict but for the

intervention of the United States, the Government of Honduras was

especially menaced; but fortunately peaceful conditions were maintained

within the borders of that Republic. The financial condition of that

country remains unchanged, no means having been found for the final

adjustment of pressing outstanding foreign claims. This makes it the more

regrettable that the financial convention between the United States and

Honduras has thus far failed of ratification. The Government of the United

States continues to hold itself ready to cooperate with the Government of

Honduras, which it is believed, can not much longer delay the meeting of

its foreign obligations, and it is hoped at the proper time American

bankers will be willing to cooperate for this purpose.

NECESSITY FOR GREATER GOVERNMENTAL EFFORT IN RETENTION AND EXPANSION OF OUR

FOREIGN TRADE

It is not possible to make to the Congress a communication upon the present

foreign relations of the United States so detailed as to convey an adequate

impression of the enormous increase in the importance and activities of

those relations. If this Government is really to preserve to the American

people that free opportunity in foreign markets which will soon be

indispensable to our prosperity, even greater efforts must be made.

Otherwise the American merchant, manufacturer, and exporter will find many

a field in which American trade should logically predominate preempted

through the more energetic efforts of other governments and other

commercial nations.

There are many ways in which through hearty cooperation the legislative and

executive branches of this Government can do much. The absolute essential

is the spirit of united effort and singleness of purpose. I will allude

only to a very few specific examples of action which ought then to result.

America can not take its proper place in the most important fields for its

commercial activity and enterprise unless we have a merchant marine.

American commerce and enterprise can not be effectively fostered in those

fields unless we have good American banks in the countries referred to. We

need American newspapers in those countries and proper means for public

information about them. We need to assure the permanency of a trained

foreign service. We need legislation enabling the members of the foreign

service to be systematically brought in direct contact with the industrial,

manufacturing, and exporting interests of this country in order that

American business men may enter the foreign field with a clear perception

of the exact conditions to be dealt with and the officers themselves may

prosecute their work with a clear idea of what American industrial and

manufacturing interests require.

CONCLUSION

Congress should fully realize the conditions which obtain in the world as

we find ourselves at the threshold of our middle age as a Nation. We have

emerged full grown as a peer in the great concourse of nations. We have

passed through various formative periods. We have been self-centered in the

struggle to develop our domestic resources and deal with our domestic

questions. The Nation is now too matured to continue in its foreign

relations those temporary expedients natural to a people to whom domestic

affairs are the sole concern. In the past our diplomacy has often

consisted, in normal times, in a mere assertion of the right to

international existence. We are now in a larger relation with broader

rights of our own and obligations to others than ourselves. A number of

great guiding principles were laid down early in the history of this

Government. The recent task of our diplomacy has been to adjust those

principles to the conditions of to-day, to develop their corollaries, to

find practical applications of the old principles expanded to meet new

situations. Thus are being evolved bases upon which can rest the

superstructure of policies which must grow with the destined progress of

this Nation. The successful conduct of our foreign relations demands a

broad and a modern view. We can not meet new questions nor build for the

future if we confine ourselves to outworn dogmas of the past and to the

perspective appropriate at our emergence from colonial times and

conditions. The opening of the Panama Canal will mark a new era in our

international life and create new and worldwide conditions which, with

their vast correlations and consequences, will obtain for hundreds of years

to come. We must not wait for events to overtake us unawares. With

continuity of purpose we must deal with the problems of our external

relations by a diplomacy modern, resourceful, magnanimous, and fittingly

expressive of the high ideals of a great nation.

Part II.[On Fiscal, judicial, Military and Insular Affairs.] THE WHITE

HOUSE, December 6, 1912. To the Senate and House of Representatives:

On the 3d of December I sent a message to the Congress, which was confined

to our foreign relations. The Secretary of State makes no report to the

President or to Congress, and a review of the history of the transactions

of the State Department in one year must therefore be included by the

President in his annual message or Congress will not be fully informed of

them. A full discussion of all the transactions of the Government, with a

view to informing the Congress of the important events of the year and

recommending new legislation, requires more space than one message of

reasonable length affords. I have therefore adopted the course of sending

three or four messages during the first ten days of the session, so as to

include reference to the more important matters that should be brought to

the attention of the Congress.

BUSINESS CONDITIONS

The condition of the country with reference to business could hardly be

better. While the four years of the administration now drawing to a close

have not developed great speculative expansion or a wide field of new

investment, the recovery and progress made from the depressing conditions

following the panic of 1907 have been steady and the improvement has been

clear and easily traced in the statistics. The business of the country is

now on a solid basis. Credits are not unduly extended, and every phase of

the situation seems in a state of preparedness for a period of unexampled

prosperity. Manufacturing concerns are running at their full capacity and

the demand for labor was never so constant and growing. The foreign trade

of the country for this year will exceed $4,000,000,000, while the balance

in our favor-that of the excess of exports over imports-will exceed

$500,000,000. More than half our exports are manufactures or partly

manufactured material, while our exports of farm products do not show the

same increase because of domestic consumption. It is a year of bumper

crops; the total money value of farm products will exceed $9,500,000,000.

It is a year when the bushel or unit price of agricultural products has

gradually fallen, and yet the total value of the entire crop is greater by

over $1,000,000,000 than we have known in our history.

CONDITION OF THE TREASURY

The condition of the Treasury is very satisfactory. The total

interest-bearing debt is $963,777,770, of which $134,631,980 constitute the

Panama Canal loan. The noninterest-bearing debt is $378,301,284.90,

including $346,681,016 of greenbacks. We have in the Treasury $150,000,000

in gold coin as a reserve against the outstanding greenbacks; and in

addition we have a cash balance in the Treasury as a general fund of

$167,152,478.99, or an increase of $26,975,552 over the general fund last

year.

RECEIPTS AND EXPENDITURES

For three years the expenditures of the Government have decreased under the

influence of an effort to economize. This year presents an apparent

exception. The estimate by the Secretary of the Treasury of the ordinary

receipts, exclusive of postal revenues, for the year ending June 30, 1914,

indicates that they will amount to $710,000,000. The sum of the estimates

of the expenditures for that same year, exclusive of Panama Canal

disbursements and postal disbursements payable from postal revenues, is

$732,000,000, indicating a deficit Of $22,000,000. For the year ending June

30, 1913, similarly estimated receipts were $667,000,000, while the total

corresponding estimate of expenditures for that year, submitted through the

Secretary of the Treasury to Congress, amounted to $656,000,000. This shows

an increase of $76,000,000 in the estimates for 1914 over the total

estimates of 1913. This is due to an increase Of $25,000,000 in the

estimate for rivers and harbors for the next year on projects and surveys

authorized by Congress; to an increase under the new pension bill Of

$32,500,000; and to an increase in the estimates for expenses of the Navy

Department Of $24,000,000. The estimate for the Navy Department for the

year 1913 included two battleships. Congress made provision for only one

battleship, and therefore the Navy Department has deemed it necessary and

proper to make an estimate which includes the first year's expenditure for

three battleships in addition to the amount required for work on the

uncompleted ships now under construction. In addition to the natural

increase in the expenditures for the uncompleted ships, and the additional

battleship estimated for, the other increases are due to the pay

required for 4,000 or more additional enlisted men in the Navy; and to this

must be added the additional cost of construction imposed by the change in

the eight-hour law which makes it applicable to ships built in private

shipyards.

With the exceptions of these three items, the estimates show a reduction

this year below the total estimates for 1913 of more than $5,000,000.

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

than for 1913.

OUR BANKING AND CURRENCY SYSTEM

A time when panics seem far removed is the best time for us to prepare our

financial system to withstand a storm. The most crying need this country

has is a proper banking and currency system. The existing one is

inadequate, and everyone who has studied the question admits it.

It is the business of the National Government to provide a medium,

automatically contracting and expanding in volume, to meet the needs of

trade. Our present system lacks the indispensable quality of elasticity.

The only part of our monetary medium that has elasticity is the bank-note

currency. The peculiar provisions of the law requiring national banks to

maintain reserves to meet the call of the depositors operates to increase

the money stringency when it arises rather than to expand the supply of

currency and relieve it. It operates upon each bank and furnishes a motive

for the withdrawal of currency from the channels of trade by each bank to

save itself, and offers no inducement whatever for the use of the reserve

to expand the supply of currency to meet the exceptional demand.

After the panic of 1907 Congress realized that the present system was not

adapted to the country's needs and that under it panics were possible that

might properly be avoided by legislative provision. Accordingly a monetary

commission was appointed which made a report in February, 1912. The system

which they recommended involved a National Reserve Association, which was,

in certain of its faculties and functions, a bank, and which was given

through its governing authorities the power, by issuing circulating notes

for approved commercial paper, by fixing discounts, and by other methods of

transfer of currency, to expand the supply of the monetary medium where it

was most needed to prevent the export or hoarding of gold and generally to

exercise such supervision over the supply of money in every part of the

country as to prevent a stringency and a panic. The stock in this

association was to be distributed to the banks of the whole United States,

State and National, in a mixed proportion to bank units and to capital

stock paid in. The control of the association was vested in a board of

directors to be elected by representatives of the banks, except certain

ex-officio directors, three Cabinet officers, and the Comptroller of the

Currency. The President was to appoint the governor of the association from

three persons to be selected by the directors, while the two deputy

governors were to be elected by the board of directors. The details of the

plan were worked out with great care and ability, and the plan in general

seems to me to furnish the basis for a proper solution of our present

difficulties. I feel that the Government might very properly be given a

greater voice in the executive committee of the board of directors without

danger of injecting politics into its management, but I think the

federation system of banks is a good one, provided proper precautions are

taken to prevent banks of large capital from absorbing power through

ownership of stock in other banks. The objections to a central bank it

seems to me are obviated if the ownership of the reserve association is

distributed among all the banks of a country in which banking is free. The

earnings of the reserve association are limited in percentage tit a

reasonable and fixed amount, and the profits over and above this are to be

turned into the Government Treasury. It is quite probable that still

greater security against control by money centers may be worked into the

plan.

Certain it is, however, that the objections which were made in the past

history of this country to a central bank as furnishing a monopoly of

financial power to private individuals, would not apply to an association

whose ownership and control is so widely distributed and is divided between

all the banks of the country, State and National, on the one hand, and the

Chief Executive through three department heads and his Comptroller of the

Currency, on the other. The ancient hostility to a national bank, with its

branches, in which is concentrated the privilege of doing a banking

business and carrying on the financial transactions of the Government, has

prevented the establishment of such a bank since it was abolished in the

Jackson Administration. Our present national banking law has obviated

objections growing out of the same cause by providing a free banking system

in which any set of stockholders can establish a national bank if they

comply with the conditions of law. It seems to me that the National Reserve

Association meets the same objection in a similar way; that is, by giving

to each bank, State and National, in accordance with its size, a certain

share in the stock of the reserve association, nontransferable and only to

be held by the bank while it performs its functions as a partner in the

reserve association.

The report of the commission recommends provisions for the imposition of a

graduated tax on the expanded currency of such a character as to furnish a

motive for reducing the issue of notes whenever their presence in the money

market is not required by the exigencies of trade. In other words, the

whole system has been worked out with the greatest care. Theoretically it

presents a plan that ought to command support. Practically it may require

modification in various of its provisions in order to make the security

against, abuses by combinations among the banks impossible. But in the face

of the crying necessity that there is for improvement in our present

system, I urgently invite the attention of Congress to the proposed plan

and the report of the commission, with the hope that an earnest

consideration may suggest amendments and changes within the general plan

which will lead to its adoption for the benefit of the country. There is no

class in the community more interested in a safe and sane banking and

currency system, one which will prevent panics and automatically furnish in

each trade center the currency needed in the carrying on of the business at

that center, than the wage earner. There is no class in the community whose

experience better qualifies them to make suggestions as to the sufficiency

of a currency and banking system than the bankers and business men. Ought

we, therefore, to ignore their recommendations and reject their financial

judgment as to the proper method of reforming our financial system merely

because of the suspicion which exists against them in the minds of many of

our fellow citizens? Is it not the duty of Congress to take up the plan

suggested, examine it from all standpoints, give impartial consideration to

the testimony of those whose experience ought to fit them to give the best

advice on the subject, and then to adopt some plan which will secure the

benefits desired?

A banking and currency system seems far away from the wage earner and the

farmer, but the fact is that they are vitally interested in a safe system

of currency which shall graduate its volume to the amount needed and which

shall prevent times of artificial stringency that frighten capital, stop

employment, prevent the meeting of the pay roll, destroy local markets, and

produce penury and want.

THE TARIFF

I have regarded it as my duty in former messages to the Congress to urge

the revision of the tariff upon principles of protection. It was my

judgment that the customs duties ought to be revised downward, but that the

reduction ought not to be below a rate which would represent the difference

in the cost of production between the article in question at home and

abroad, and for this and other reasons I vetoed several bills which were

presented to me in the last session of this Congress. Now that a new

Congress has been elected on a platform of a tariff for revenue only rather

than a protective tariff, and is to revise the tariff on that basis, it is

needless for me to occupy the time of this Congress with arguments or

recommendations in favor of a protective tariff.

Before passing from the tariff law, however, known as the Payne tariff law

of August 5, 1909, I desire to call attention to section 38 of that act,

assessing a special excise tax on corporations. It contains a provision

requiring the levy of an additional 50 per cent to the annual tax in cases

of neglect to verify the prescribed return or to file it before the time

required by law. This additional charge of 50 per cent operates in some

cases as a harsh penalty for what may have been a mere inadvertence or

unintentional oversight, and the law should be so amended as to mitigate

the severity of the charge in such instances. Provision should also be made

for the refund of additional taxes heretofore collected because of such

infractions in those cases where the penalty imposed has been so

disproportionate to the offense as equitably to demand relief.

BUDGET

The estimates for the next fiscal year have been assembled by the Secretary

of the Treasury and by him transmitted to Congress. I purpose at a later

day to submit to Congress a form of budget prepared for me and recommended

by the President's Commission on Economy and Efficiency, with a view of

suggesting the useful and informing character of a properly framed budget.

WAR DEPARTMENT

The War Department combines within its jurisdiction functions which in

other countries usually occupy three departments. It not only has the

management of the Army and the coast defenses, but its jurisdiction extends

to the government of the Philippines and of Porto Rico and the control of

the receivership of the customs revenues of the Dominican Republic; it also

includes the recommendation of all plans for the improvement of harbors and

waterways and their execution when adopted; and, by virtue of an Executive

order, the supervision of the construction of the Panama Canal.

ARMY REORGANIZATION

Our small Army now consists of 83,809 men, excluding the 5,000 Philippine

scouts. Leaving out of consideration the Coast Artillery force, whose

position is fixed in our various seacoast defenses, and the present

garrisons of our various insular possessions, we have to-day within the

continental United States a mobile Army of only about 35,000 men. This

little force must be still further drawn upon to supply the new garrisons

for the great naval base which is being established at Pearl Harbor, in the

Hawaiian Islands, and to protect the locks now rapidly approaching

completion at Panama. The forces remaining in the United States are now

scattered in nearly 50 Posts, situated for a variety of historical reasons

in 24 States. These posts contain only fractions of regiments, averaging

less than 700 men each. In time of peace it has been our historical policy

to administer these units separately by a geographical organization. In

other words, our Army in time of peace has never been a united organization

but merely scattered groups of companies, battalions, and regiments, and

the first task in time of war has been to create out of these scattered

units an Army fit for effective teamwork and cooperation.

To the task of meeting these patent defects, the War Department has been

addressing itself during the past year. For many years we had no officer or

division whose business it was to study these problems and plan remedies

for these defects. With the establishment of the General Staff nine years

ago a body was created for this purpose. It has, necessarily, required time

to overcome, even in its own personnel, the habits of mind engendered by a

century of lack of method, but of late years its work has become systematic

and effective, and it has recently been addressing itself vigorously to

these problems.

A comprehensive plan of Army reorganization was prepared by the War College

Division of the General Staff. This plan was thoroughly discussed last

summer at a series of open conferences held by the Secretary of War and

attended by representatives from all branches of the Army and from

Congress. In printed form it has been distributed to Members of Congress

and throughout the Army and the National Guard, and widely through

institutions of learning and elsewhere in the United States. In it, for the

first time, we have a tentative chart for future progress.

Under the influence of this study definite and effective steps have been

taken toward Army reorganization so far as such reorganization lies within

the Executive power. Hitherto there has been no difference of policy in the

treatment of the organization of our foreign garrisons from those of troops

within the United States. The difference of situation is vital, and the

foreign garrison should be prepared to defend itself at an instant's notice

against a foe who may command the sea. Unlike the troops in the United

States, it can not count upon reinforcements or recruitment. It is an

outpost upon which will fall the brunt of the first attack in case of war.

The historical policy of the United States of carrying its regiments during

time of peace at half strength has no application to our foreign garrisons.

During the past year this defect has been remedied as to the Philippines

garrison. The former garrison of 12 reduced regiments has been replaced by

a garrison of 6 regiments at full strength, giving fully the same number of

riflemen at an estimated economy in cost of maintenance of over $1,000,000

per year. This garrison is to be permanent. Its regimental units, instead

of being transferred periodically back and forth from the United States,

will remain in the islands. The officers and men composing these units

will, however, serve a regular tropical detail as usual, thus involving no

greater hardship upon the personnel and greatly increasing the

effectiveness of the garrison. A similar policy is proposed for the

Hawaiian and Panama garrisons as fast as the barracks for them are

completed. I strongly urge upon Congress that the necessary appropriations

for this purpose should be promptly made. It is, in my opinion, of first

importance that these national outposts, upon which a successful home

defense will, primarily, depend, should be finished and placed in effective

condition at the earliest possible day.

THE HOME ARMY

Simultaneously with the foregoing steps the War Department has been

proceeding with the reorganization of the Army at home. The formerly

disassociated units are being united into a tactical organization of three

divisions, each consisting of two or three brigades of Infantry and, so far

as practicable, a proper proportion of divisional Cavalry and Artillery. Of

course, the extent to which this reform can be carried by the Executive is

practically limited to a paper organization. The scattered units can be

brought under a proper organization, but they will remain physically

scattered until Congress supplies the necessary funds for grouping them in

more concentrated posts. Until that is done the present difficulty of

drilling our scattered groups together, and thus training them for the

proper team play, can not be removed. But we shall, at least, have an Army

which will know its own organization and will be inspected by its proper

commanders, and to which, as a unit, emergency orders can be issued in time

of war or other emergency. Moreover, the organization, which in many

respects is necessarily a skeleton, will furnish a guide for future

development. The separate regiments and companies will know the brigades

and divisions to which they belong. They will be maneuvered together

whenever maneuvers are established by Congress, and the gaps in their

organization will show the pattern into which can be filled new troops as

the Nation grows and a larger Army is provided.

REGULAR ARMY RESERVE

One of the most important reforms accomplished during the past year has

been the legislation enacted in the Army appropriation bill of last summer,

providing for a Regular Army reserve. Hitherto our national policy has

assumed that at the outbreak of war our regiments would be immediately

raised to full strength. But our laws have provided no means by which this

could be accomplished, or by which the losses of the regiments when once

sent to the front could be repaired. In this respect we have neglected the

lessons learned by other nations. The new law provides that the soldier,

after serving four years with colors, shall pass into a reserve for three

years. At his option he may go into the reserve at the end of three years,

remaining there for four years. While in the reserve he can be called to

active duty only in case of war or other national emergency, and when so

called and only in such case will receive a stated amount of pay for all of

the period in which he has been a member of the reserve. The legislation is

imperfect, in my opinion, in certain particulars, but it is a most

important step in the right direction, and I earnestly hope that it will be

carefully studied and perfected by Congress.

THE NATIONAL GUARD

Under existing law the National Guard constitutes, after the Regular Army,

the first line of national defense. Its organization, discipline, training,

and equipment, under recent legislation, have been assimilated, as far as

possible, to those of the Regular Army, and its practical efficiency, under

the effect of this training, has very greatly increased. Our citizen

soldiers under present conditions have reached a stage of development

beyond which they can not reasonably be asked to go without further direct

assistance in the form of pay from the Federal Government. On the other

hand, such pay from the National Treasury would not be justified unless it

produced a proper equivalent in additional efficiency on the part of the

National Guard. The Organized Militia to-day can not be ordered outside of

the limits of the United States, and thus can not lawfully be used for

general military purposes. The officers and men are ambitious and eager to

make themselves thus available and to become an efficient national reserve

of citizen soldiery. They are the only force of trained men, other than the

Regular Army, upon which we can rely. The so-called militia pay bill, in

the form agreed on between the authorities of the War Department and the

representatives of the National Guard, in my opinion adequately meets these

conditions and offers a proper return for the pay which it is proposed to

give to the National Guard. I believe that its enactment into law would be

a very long step toward providing this Nation with a first line of citizen

soldiery, upon which its main reliance must depend in case of any national

emergency. Plans for the organization of the National Guard into tactical

divisions, on the same lines as those adopted for the Regular Army, are

being formulated by the War College Division of the General Staff.

NATIONAL VOLUNTEERS

The National Guard consists of only about 110,000 men. In any serious war

in the past it has always been necessary, and in such a war in the future

it doubtless will be necessary, for the Nation to depend, in addition to

the Regular Army and the National Guard, upon a large force of volunteers.

There is at present no adequate provision of law for the raising of such a

force. There is now pending in Congress, however, a bill which makes such

provision, and which I believe is admirably adapted to meet the exigencies

which would be presented in case of war. The passage of the bill would not

entail a dollar's expense upon the Government at this time or in the future

until war comes. But if war comes the methods therein directed are in

accordance with the best military judgment as to what they ought to be, and

the act would prevent the necessity for a discussion of any legislation and

the delays incident to its consideration and adoption. I earnestly urge its

passage.

CONSOLIDATION OF THE SUPPLY CORPS

The Army appropriation act of 191:2 also carried legislation for the

consolidation of the Quartermaster's Department, the Subsistence

Department, and the Pay Corps into a single supply department, to be known

as the Quartermaster's Corps. It also provided for the organization of a

special force of enlisted men, to be known as the Service Corps, gradually

to replace many of the civilian employees engaged in the manual labor

necessary in every army. I believe that both of these enactments will

improve the administration of our military establishment. The consolidation

of the supply corps has already been effected, and the organization of the

service corps is being put into effect.

All of the foregoing reforms are in the direction of economy and

efficiency. Except for the slight increase necessary to garrison our

outposts in Hawaii and Panama, they do not call for a larger Army, but they

do tend to produce a much more efficient one. The only substantial new

appropriations required are those which, as I have pointed out, are

necessary to complete the fortifications and barracks at our naval bases

and outposts beyond the sea.

PORTO RICO

Porto Rico continues to show notable progress, both commercially and in the

spread of education. Its external commerce has increased 17 per cent over

the preceding year, bringing the total value up to $92,631,886, or more

than five times the value of the commerce of the island in 1901. During the

year 160,657 Pupils were enrolled in the public schools, as against 145,525

for the preceding year, and as compared with 26,000 for the first year of

American administration. Special efforts are under way for the promotion of

vocational and industrial training, the need of which is particularly

pressing in the island. When the bubonic plague broke out last June, the

quick and efficient response of the people of Porto Rico to the demands of

modern sanitation was strikingly shown by the thorough campaign which was

instituted against the plague and the hearty public opinion which supported

the Government's efforts to check its progress and to prevent its

recurrence.

The failure thus far to grant American citizenship continues to be the only

ground of dissatisfaction. The bill conferring such citizenship has passed

the House of Representatives and is now awaiting the action of the Senate.

I am heartily in favor of the passage of this bill. I believe that the

demand for citizenship is just, and that it is amply earned by sustained

loyalty on the part of the inhabitants of the island. But it should be

remembered that the demand must be, and in the minds of most Porto Ricans

is, entirely disassociated from any thought of statehood. I believe that no

substantial approved public opinion in the United States or in Porto Rico

contemplates statehood for the island as the ultimate form of relations

between us. I believe that the aim to be striven for is the fullest

possible allowance of legal and fiscal self-government, with American

citizenship as to the bond between us; in other words, a relation analogous

to the present relation between Great Britain and such self-governing

colonies as Canada and Australia. This would conduce to the fullest and

most self-sustaining development of Porto Rico, while at the same time it

would grant her the economic and political benefits of being under the

American flag.

PHILIPPINES

A bill is pending in Congress which revolutionizes the carefully worked out

scheme of government under which the Philippine Islands are now governed

and which proposes to render them virtually autonomous at once and

absolutely independent in eight years. Such a proposal can only be founded

on the assumption that we have now discharged our trusteeship to the

Filipino people and our responsibility for them to the world, and that they

are now prepared for self-government as well as national sovereignty. A

thorough and unbiased knowledge of the facts clearly shows that these

assumptions are absolutely without justification. As to this, I believe

that there is no substantial difference of opinion among any of those who

have had the responsibility of facing Philippine problems in the

administration of the islands, and I believe that no one to whom the future

of this people is a responsible concern can countenance a policy fraught

with the direst consequences to those on whose behalf it is ostensibly

urged.

In the Philippine Islands we have embarked upon an experiment unprecedented

in dealing with dependent people. We are developing there conditions

exclusively for their own welfare. We found an archipelago containing 24

tribes and races, speaking a great variety of languages, and with a

population over 80 per cent of which could neither read nor write. Through

the unifying forces of a common education, of commercial and economic

development, and of gradual participation in local self-government we are

endeavoring to evolve a homogeneous people fit to determine, when the time

arrives, their own destiny. We are seeking to arouse a national spirit and

not, as under the older colonial theory, to suppress such a spirit. The

character of the work we have been doing is keenly recognized in the

Orient, and our success thus far followed with not a little envy by those

who, initiating the same policy, find themselves hampered by conditions

grown up in earlier days and under different theories of administration.

But our work is far from done. Our duty to the Filipinos is far from

discharged. Over half a million Filipino students are now in the Philippine

schools helping to mold the men of the future into a homogeneous people,

but there still remain more than a million Filipino children of school age

yet to be reached. Freed from American control the integrating forces of a

common education and a common language will cease and the educational

system now well started will slip back into inefficiency and disorder.

An enormous increase in the commercial development of the islands has been

made since they were virtually granted full access to our markets three

years ago, with every prospect of increasing development and diversified

industries. Freed from American control such development is bound to

decline. Every observer speaks of the great progress in public works for

the benefit of the Filipinos, of harbor improvements, of roads and

railways, of irrigation and artesian wells, public buildings, and better

means of communication. But large parts of the islands are still unreached,

still even unexplored, roads and railways are needed in many parts,

irrigation systems are still to be installed, and wells to be driven. Whole

villages and towns are still without means of communication other than

almost impassable roads and trails. Even the great progress in sanitation,

which has successfully suppressed smallpox, the bubonic plague, and Asiatic

cholera, has found the cause of and a cure for beriberi, has segregated the

lepers, has helped to make Manila the most healthful city in the Orient,

and to free life throughout the whole archipelago from its former dread

diseases, is nevertheless incomplete in many essentials of permanence in

sanitary policy. Even more remains to be accomplished. If freed from

American control sanitary progress is bound to be arrested and all that has

been achieved likely to be lost.

Concurrent with the economic, social, and industrial development of the

islands has been the development of the political capacity of the people.

By their progressive participation in government the Filipinos are being

steadily and hopefully trained for self-government. Under Spanish control

they shared in no way in the government. Under American control they have

shared largely and increasingly. Within the last dozen years they have

gradually been given complete autonomy in the municipalities, the right to

elect two-thirds of the provincial governing boards and the lower house of

the insular legislature. They have four native members out of nine members

of the commission, or upper house. The chief justice and two justices of

the supreme court, about one-half of the higher judicial positions, and all

of the justices of the peach are natives. In the classified civil service

the proportion of Filipinos increased from 51 per cent in 1904 to 67 per

cent in 1911. Thus to-day all the municipal employees, over go per cent of

the provincial employees, and 60 per cent of the officials and employees of

the central government are Filipinos. The ideal which has been kept in mind

in our political guidance of the islands has been real popular

self-government and not mere paper independence. I am happy to say that the

Filipinos have done well enough in the places they have filled and in the

discharge of the political power with which they have been intrusted to

warrant the belief that they can be educated and trained to complete

self-government. But the present satisfactory results are due to constant

support and supervision at every step by Americans.

If the task we have undertaken is higher than that assumed by other

nations, its accomplishment must demand even more patience. We must not

forget that we found the Filipinos wholly untrained in government. Up to

our advent all other experience sought to repress rather than encourage

political power. It takes long time and much experience to ingrain

political habits of steadiness and efficiency. Popular self-government

ultimately must rest upon common habits of thought and upon a reasonably

developed public opinion. No such foundations for self-government, let alone

independence are now present in the Philippine Islands. Disregarding even

their racial heterogeneity and the lack of ability to think as a nation, it

is sufficient to point out that under liberal franchise privileges only

about 3 per cent of the Filipinos vote and only 5 per cent of the people

are said to read the public press. To confer independence upon the

Filipinos now is, therefore, to subject the great mass of their people to

the dominance of an oligarchical and, probably, exploiting minority. Such a

course will be as cruel to those people as it would be shameful to us.

Our true course is to pursue steadily and courageously the path we have

thus far followed; to guide the Filipinos into self-sustaining pursuits; to

continue the cultivation of sound political habits through education and

political practice; to encourage the diversification of industries, and to

realize the advantages of their industrial education by conservatively

approved cooperative methods, at once checking the dangers of concentrated

wealth and building up a sturdy, independent citizenship. We should do all

this with a disinterested endeavor to secure for the Filipinos economic

independence and to fit them for complete self-government, with the power

to decide eventually, according to their own largest good, whether such

self-government shall be accompanied by independence. A present declaration

even of future independence would retard progress by the dissension and

disorder it would arouse. On our part it would be a disingenuous attempt,

under the guise of conferring a benefit on them, to relieve ourselves from

the heavy and difficult burden which thus far we have been bravely and

consistently sustaining. It would be a disguised policy of scuttle. It

would make the helpless Filipino the football of oriental politics, tinder

the protection of a guaranty of their independence, which we would be

powerless to enforce.

REGULATION OF WATER POWER

There are pending before Congress a large number of bills proposing to

grant privileges of erecting dams for the purpose of creating water power

in our navigable rivers. The pendency of these bills has brought out an

important defect in the existing general dam act. That act does not, in my

opinion, grant sufficient power to the Federal Government in dealing with

the construction of such dams to exact protective conditions in the

interest of navigation. It does not permit the Federal Government, as a

condition of its permit, to require that a part of the value thus created

shall be applied to the further general improvement and protection of the

stream. I believe this to be one of the most important matters of internal

improvement now confronting the Government. Most of the navigable rivers of

this country are comparatively long and shallow. In order that they may be

made fully useful for navigation there has come into vogue a method of

improvement known as canalization, or the slack-water method, which

consists in building a series of dams and locks, each of which will create

a long pool of deep navigable water. At each of these dams there is usually

created also water power of commercial value. If the water power thus

created can be made available for the further improvement of navigation in

the stream, it is manifest that the improvement will be much more quickly

effected on the one hand, and, on the other, that the burden on the general

taxpayers of the country will be very much reduced. Private interests

seeking permits to build water-power dams in navigable streams usually urge

that they thus improve navigation, and that if they do not impair

navigation they should be allowed to take for themselves the entire profits

of the water-power development. Whatever they may do by way of relieving

the Government of the expense of improving navigation should be given due

consideration, but it must be apparent that there may be a profit beyond a

reasonably liberal return upon the private investment which is a potential

asset of the Government in carrying out a comprehensive policy of waterway

development. It is no objection to the retention and use of such an asset

by the Government that a comprehensive waterway policy will include the

protection and development of the other public uses of water, which can not

and should not be ignored in making and executing plans for the protection

and development of navigation. It is also equally clear that inasmuch as

the water power thus created is or may be an incident of a general scheme

of waterway improvement within the constitutional jurisdiction of the

Federal Government, the regulation of such water power lies also within

that jurisdiction. In my opinion constructive statesmanship requires that

legislation should be enacted which will permit the development of

navigation in these great rivers to go hand in hand with the utilization of

this by-product of water power, created in the course of the same

improvement, and that the general dam act should be so amended as to make

this possible. I deem it highly important that the Nation should adopt a

consistent and harmonious treatment of these water-power projects, which

will preserve for this purpose their value to the Government, whose right

it is to grant the permit. Any other policy is equivalent to throwing away

a most valuable national asset.

THE PANAMA CANAL

During the past year the work of construction upon the canal has progressed

most satisfactorily. About 87 per cent of the excavation work has been

completed, and more than 93 per cent of the concrete for all the locks is

in place. In view of the great interest which has been manifested as to

some slides in the Culebra Cut, I am glad to say that the report of Col.

Goethals should allay any apprehension on this point. It is gratifying to

note that none of the slides which occurred during this year would have

interfered with the passage of the ships had the canal, in fact, been in

operation, and when the slope pressures will have been finally adjusted and

the growth of vegetation will minimize erosion in the banks of the cut, the

slide problem will be practically solved and an ample stability assured for

the Culebra Cut.

Although the official date of the opening has been set for January 1, 1915,

the canal will, in fact, from present indications, be opened for shipping

during the latter half of 1913. No fixed date can as yet be set, but

shipping interests will be advised as soon as assurances can be given that

vessels can pass through without unnecessary delay.

Recognizing the administrative problem in the management of the canal,

Congress in the act of August 24, 1912, has made admirable provisions for

executive responsibility in the control of the canal and the government of

the Canal Zone. The problem of most efficient organization is receiving

careful consideration, so that a scheme of organization and control best

adapted to the conditions of the canal may be formulated and put in

operation as expeditiously as possible. Acting tinder the authority

conferred on me by Congress, I have, by Executive proclamation, promulgated

the following schedule of tolls for ships passing through the canal, based

upon the thorough report of Emory R. Johnson, special commissioner on

traffic and tolls:

I. On merchant vessels carrying passengers or cargo, $1.20 per net vessel

ton-each 100 cubic feet-of actual earning capacity. 2. On vessels in

ballast without passengers or cargo, 40 per cent less than the rate of

tolls for vessels with passengers or cargo. 3. Upon naval vessels, other

than transports, colliers, hospital ships, and supply ships, 50 cents per

displacement ton. 4. Upon Army and Navy transports, colliers, hospital

ships, and supply ships, $1.20 per net ton, the vessels to be measured by

the same rules as are employed in determining the net tonnage of merchant

vessels. Rules for the determination of the tonnage upon which toll charges

are based are now in course of preparation and will be promulgated in due

season.

PANAMA CANAL TREATY

The proclamation which I have issued in respect to the Panama Canal tolls

is in accord with the Panama Canal act passed by this Congress August 24,

1912. We have been advised that the British Government has prepared a

protest against the act and its enforcement in so far as it relieves from

the payment of tolls American ships engaged in the American coastwise trade

on the ground that it violates British rights tinder the Hay-Pauncefote

treaty concerning the Panama Canal. When the protest is presented, it will

be promptly considered and an effort made to reach a satisfactory

adjustment of any differences there may be between the two Governments.

WORKMEN'S COMPENSATION ACT

The promulgation of an efficient workmen's compensation act, adapted to the

particular conditions of the zone, is awaiting adequate appropriation by

Congress for the payment of claims arising thereunder. I urge that speedy

provision be made in order that we may install upon the zone a system of

settling claims for injuries in best accord with modern humane, social, and

industrial theories.

PROMOTION FOR COL. GOETHALS

As the completion of the canal grows nearer, and as the wonderful executive

work of Col. Goethals becomes more conspicuous in the eyes of the country

and of the world, it seems to me wise and proper to make provision by law

for such reward to him as may be commensurate with the service that he has

rendered to his country. I suggest that this reward take the form of an

appointment of Col. Goethals as a major general in the Army of the United

States, and that the law authorizing such appointment be accompanied with a

provision permitting his designation as Chief of Engineers upon the

retirement of the present incumbent of that office.

NAVY DEPARTMENT

The Navy of the United States is in a greater state of efficiency and is

more powerful than it has ever been before, but in the emulation which

exists between different countries in respect to the increase of naval and

military armaments this condition is not a permanent one. In view of the

many improvements and increases by foreign Governments the slightest halt

on our part in respect to new construction throws us back and reduces us

from a naval power of the first rank and places us among the nations of the

second rank. In the past 15 years the Navy has expanded rapidly and yet far

less rapidly than our country. From now on reduced expenditures in the Navy

means reduced military strength. The world's history has shown the

importance of sea power both for adequate defense and for the support of

important and definite policies.

I had the pleasure of attending this autumn a mobilization of the Atlantic

Fleet, and was glad to observe and note the preparedness of the fleet for

instant action. The review brought before the President and the Secretary

of the Navy a greater and more powerful collection of vessels than had ever

been gathered in American waters. The condition of the fleet and of the

officers and enlisted men and of the equipment of the vessels entitled

those in authority to the greatest credit.

I again commend to Congress the giving of legislative sanction to the

appointment of the naval aids to the Secretary of the Navy. These aids and

the council of aids appointed by the Secretary of the Navy to assist him in

the conduct of his department have proven to be of the highest utility.

They have furnished an executive committee of the most skilled naval

experts, who have coordinated the action of the various bureaus in the

Navy, and by their advice have enabled the Secretary to give an

administration at the same time economical and most efficient. Never before

has the United States had a Navy that compared in efficiency with its

present one, but never before have the requirements with respect to naval

warfare been higher and more exacting than now. A year ago Congress refused

to appropriate for more than one battleship. In this I think a great

mistake of policy was made, and I urgently recommend that this Congress

make up for the mistake of the last session by appropriations authorizing

the construction of three battleships, in addition to destroyers, fuel

ships, and the other auxiliary vessels as shown in the building program of

the general board. We are confronted by a condition in respect to the

navies of the world which requires us, if we would maintain our Navy as an

insurance of peace, to augment our naval force by at least two battleships

a year and by battle cruisers, gunboats, torpedo destroyers, and submarine

boats in a proper proportion. We have no desire for war. We would go as far

as any nation in the world to avoid war, but we are a world power. Our

population, our wealth, our definite policies, our responsibilities in the

Pacific and the Atlantic, our defense of the Panama Canal, together with

our enormous world trade and our missionary outposts on the frontiers of

civilization, require us to recognize our position as one of the foremost

in the family of nations, and to clothe ourselves with sufficient naval

power to give force to our reasonable demands, and to give weight to our

influence in those directions of progress that a powerful Christian nation

should advocate.

I observe that the Secretary of the Navy devotes some space to a change in

the disciplinary system in vogue in that branch of the service. I think

there is nothing quite so unsatisfactory to either the Army or the Navy as

the severe punishments necessarily inflicted by court-martial for

desertions and purely military offenses, and I am glad to hear that the

British have solved this important and difficult matter in a satisfactory

way. I commend to the consideration of Congress the details of the new

disciplinary system, and recommend that laws be passed putting the same

into force both in the Army and the Navy.

I invite the attention of Congress to that part of the report of the

Secretary of the Navy in which he recommends the formation of a naval

reserve by the organization of the ex-sailors of the Navy.

I repeat my recommendation made last year that proper provision should be

made for the rank of the commander in chief of the squadrons and fleets of

the Navy. The inconvenience attending the necessary precedence that most

foreign admirals have over our own whenever they meet in official functions

ought to be avoided. It impairs the prestige of our Navy and is a defect

that can be very easily removed.

DEPARTMENT OF JUSTICE

This department has been very active in the enforcement of the law. It has

been better organized and with a larger force than ever before in the

history of the Government. The prosecutions which have been successfully

concluded and which are now pending testify to the effectiveness of the

departmental work.

The prosecution of trusts under the Sherman antitrust law has gone on

without restraint or diminution, and decrees similar to those entered in

the Standard Oil and the Tobacco cases have been entered in other suits,

like the suits against the Powder Trust and the Bathtub Trust. I am very

strongly convinced that a steady, consistent course in this regard, with a

continuing of Supreme Court decisions upon new phases of the trust question

not already finally decided is going to offer a solution of this

much-discussed and troublesome issue in a quiet, calm, and judicial way,

without any radical legislation changing the governmental policy in regard

to combinations now denounced by the Sherman antitrust law. I have already

recommended as an aid in this matter legislation which would declare

unlawful certain well-known phases of unfair competition in interstate

trade, and I have also advocated voluntary national incorporation for the

larger industrial enterprises, with provision for a closer supervision by

the Bureau of Corporations, or a board appointed for the purpose, so as to

make more certain compliance with the antitrust law on the one hand and to

give greater security to the stockholders against possible prosecutions on

the other. I believe, however, that the orderly course of litigation in the

courts and the regular prosecution of trusts charged with the violation of

the antitrust law is producing among business men a clearer and clearer

perception of the line of distinction between business that is to be

encouraged and business that is to be condemned, and that in this quiet way

the question of trusts can be settled and competition retained as an

economic force to secure reasonableness in prices and freedom and

independence in trade.

REFORM OF COURT PROCEDURE

I am glad to bring to the attention of Congress the fact that the Supreme

Court has radically altered the equity rules governing the procedure on the

equity side of all Federal courts, and though, as these changes have not

been yet put in practice so as to enable us to state from actual results

what the reform will accomplish, they are of such a character that we can

reasonably prophesy that they will greatly reduce the time and cost of

litigation in such courts. The court has adopted many of the shorter

methods of the present English procedure, and while it may take a little

while for the profession to accustom itself to these methods, it is certain

greatly to facilitate litigation. The action of the Supreme Court has been

so drastic and so full of appreciation of the necessity for a great reform

in court procedure that I have no hesitation in following up this action

with a recommendation which I foreshadowed in my message of three years

ago, that the sections of the statute governing the procedure in the

Federal courts on the common-law side should be so amended as to give to

the Supreme Court the same right to make rules of procedure in common law

as they have, since the beginning of the court, exercised in equity. I do

not doubt that a full consideration of the subject will enable the court

while giving effect to the substantial differences in right and remedy

between the system of common law and the system of equity so to unite the

two procedures into the form of one civil action and to shorten the

procedure in such civil action as to furnish a model to all the State

courts exercising concurrent jurisdiction with the Federal courts of first

instance.

Under the statute now in force the common-law procedure in each Federal

court is made to conform to the procedure in the State in which the court

is held. In these days, when we should be making progress in court

procedure, such a conformity statute makes the Federal method too dependent

upon the action of State legislatures. I can but think it a great

opportunity for Congress to intrust to the highest tribunal in this

country, evidently imbued with a strong spirit in favor of a reform of

procedure, the power to frame a model code of procedure, which, while

preserving all that is valuable and necessary of the rights and remedies at

common law and in equity, shall lessen the burden of the poor litigant to a

minimum in the expedition and cheapness with which his cause can be fought

or defended through Federal courts to final judgment.

WORKMAN'S COMPENSATION ACT

The workman's compensation act reported by the special commission appointed

by Congress and the Executive, which passed the Senate and is now pending

in the House, the passage of which I have in previous messages urged upon

Congress, I venture again to call to its attention. The opposition to it

which developed in the Senate, but which was overcome by a majority in that

body, seemed to me to grow out rather of a misapprehension of its effect

than of opposition to its principle. I say again that I think no act can

have a better effect directly upon the relations between the employer and

employee than this act applying to railroads and common carriers of an

interstate character, and I am sure that the passage of the act would

greatly relieve the courts of the heaviest burden of litigation that they

have, and would enable them to dispatch other business with a speed never

before attained in courts of justice in this country.

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

Representatives:

This is the third of a series of messages in which I have brought to the

attention of the Congress the important transactions of the Government in

each of its departments during the last year and have discussed needed

reforms.

HEADS OF DEPARTMENTS SHOULD HAVE SEATS ON THE FLOOR OF CONGRESS

I recommend the adoption of legislation which shall make it the duty of

heads of departments--the members of the President's Cabinet--at convenient

times to attend the session of the House and the Senate, which shall

provide seats for them in each House, and give them the opportunity to take

part in all discussions and to answer questions of which they have had due

notice. The rigid holding apart of the executive and the legislative

branches of this Government has not worked for the great advantage of

either. There has been much lost motion in the machinery, due to the lack

of cooperation and interchange of views face to face between the

representatives of the Executive and the Members of the two legislative

branches of the Government. It was never intended that they should be

separated in the sense of not being in constant effective touch and

relationship to each other. The legislative and the executive each performs

its own appropriate function, but these functions must be coordinated. Time

and time again debates have arisen in each House upon issues which the

information of a particular department head would have enabled him, if

present, to end at once by a simple explanation or statement. Time and time

again a forceful and earnest presentation of facts and arguments by the

representative of the Executive whose duty it is to enforce the law would

have brought about a useful reform by amendment, which in the absence of

such a statement has failed of passage. I do not think I am mistaken in

saying that the presence of the members of the Cabinet on the floor of each

House would greatly contribute to the enactment of beneficial legislation.

Nor would this in any degree deprive either the legislative or the

executive of the independence which separation of the two branches has been

intended to promote. It would only facilitate their cooperation in the

public interest.

On the other hand, I am sure that the necessity and duty imposed upon

department heads of appearing in each house and in answer to searching

questions, of rendering upon their feet an account of what they have done,

or what has been done by the administration, will spur each member of the

Cabinet to closer attention to the details of his department, to greater

familiarity with its needs, and to greater care to avoid the just criticism

which the answers brought out in questions put and discussions arising

between the Members of either House and the members of the Cabinet may

properly evoke.

Objection is made that the members of the administration having no vote

could exercise no power on the floor of the House, and could not assume

that attitude of authority and control which the English parliamentary

Government have and which enables them to meet the responsibilities the

English system thrusts upon them. I agree that in certain respects it would

be more satisfactory if members of the Cabinet could at the same time be

Members of both Houses, with voting power, but this is impossible under our

system; and while a lack of this feature may detract from the influence of

the department chiefs, it will not prevent the good results which I have

described above both in the matter of legislation and in the matter of

administration. The enactment of such a law would be quite within the power

of Congress without constitutional amendment, and it has such possibilities

of usefulness that we might well make the experiment, and if we are

disappointed the misstep can be easily retraced by a repeal of the enabling

legislation.

This is not a new proposition. In the House of Representatives, in the

Thirty-eighth Congress, the proposition was referred to a select committee

of seven Members. The committee made an extensive report, and urged the

adoption of the reform. The report showed that our history had not been

without illustration of the necessity and the examples of the practice by

pointing out that in early days Secretaries were repeatedly called to the

presence of either Rouse for consultation, advice, and information. It also

referred to remarks of Mr. justice Story in his Commentaries on the

Constitution, in which he urgently presented the wisdom of such a change.

This report is to be found in Volume I of the Reports of Committees of the

First Session of the Thirty-eighth Congress, April 6, 1864.

Again, on February 4, 1881, a select committee of the Senate recommended

the passage of a similar bill, and made a report, In which, while approving

the separation of the three branches, the executive, legislative, and

judicial, they point out as a reason for the proposed change that, although

having a separate existence, the branches are "to cooperate, each with the

other, as the different members of the human body must cooperate, with each

other in order to form the figure and perform the duties of a perfect

man."

The report concluded as follows: This system will require the selection of

the strongest men to be heads of departments and will require them to be

well equipped with the knowledge of their offices. It will also require the

strongest men to be the leaders of Congress and participate in debate. It

will bring these strong men in contact, perhaps into conflict, to advance

the public weal, and thus stimulate their abilities and their efforts, and

will thus assuredly result to the good of the country.

If it should appear by actual experience that the heads of departments in

fact have not time to perform the additional duty imposed on them by this

bill, the force in their offices should be increased or the duties

devolving on them personally should be diminished. An undersecretary should

be appointed to whom could be confided that routine of administration which

requires only order and accuracy. The principal officers could then confine

their attention to those duties which require wise discretion and

intellectual activity. Thus they would have abundance of time for their

duties under this bill. Indeed, your committee believes that the public

interest would be subserved if the Secretaries were relieved of the

harassing cares of distributing clerkships and closely supervising the mere

machinery of the departments. Your committee believes that the adoption of

this bill and the effective execution of its provisions will be the first

step toward a sound civil-service reform which will secure a larger wisdom

in the adoption of policies and a better system in their execution.(Signed)

GEO. H. PENDLETON. W. B. ALLISON. D. W. VOORHEES. J. G. BLAINE. M. C.

BUTLER. JOHN J. INGALLS. O. H. PLATT. J. T. FARLEY. It would be difficult

to mention the names of higher authority in the practical knowledge of our

Government than those which are appended to this report.

POSTAL SAVINGS BANK SYSTEM

The Postal Savings Bank System has been extended so that it now includes

4,004 fourth-class post offices', as well as 645 branch offices and

stations in the larger cities. There are now 12,812 depositories at which

patrons of the system may open accounts. The number of depositors is

300,000 and the amount of their deposits is approximately $28,000,000, not

including $1,314,140 which has been with drawn by depositors for the

purpose of buying postal savings bonds. Experience demonstrates the value

of dispensing with the pass-book and introducing in its place a certificate

of deposit. The gross income of the postal savings system for the fiscal

year ending June 30, 1913, will amount to $700,000 and the interest payable

to depositors to $300,000. The cost of supplies, equipment, and salaries is

$700,000. It thus appears that the system lacks $300,000 a year of paying

interest and expenses. It is estimated, however, that when the deposits

have reached the sum Of $50,000,000, which at the present rate they soon

will do, the system will be self-sustaining. By law the postal savings

funds deposited at each post office are required to be redeposited in local

banks. State and national banks to the number of 7,357 have qualified as

depositories for these funds. Such deposits are secured by bonds

aggregating $54,000,000. Of this amount, $37,000,000 represent municipal

bonds.

PARCEL POST

In several messages I have favored and recommended the adoption of a system

of parcel post. In the postal appropriation act of last year a general

system was provided and its installation was directed by the 1st of

January. This has entailed upon the Post Office Department a great deal of

very heavy labor, but the Postmaster General informs me that on the date

selected, to wit, the 1st of January, near at hand, the department will be

in readiness to meet successfully the requirements of the public.

CLASSIFICATION OF POSTMASTERS

A trial, during the past three years, of the system of classifying

fourth-class postmasters in that part of the country lying between the

Mississippi River on the west, Canada on the north, the Atlantic Ocean on

the east, and Mason and Dixon's line on the south has been sufficiently

satisfactory to justify the postal authorities in recommending the

extension of the order to include all the fourth-class postmasters in the

country. In September, 1912, upon the suggestion of the Postmaster General,

I directed him to prepare an order which should put the system in effect,

except in Alaska, Guam, Hawaii, Porto Rico, and Samoa. Under date of

October 15 I issued such an order which affected 36,000 postmasters. By the

order the post offices were divided into groups A and B. Group A includes

all postmasters whose compensation is $500 or more, and group B those whose

compensation is less than that sum. Different methods are pursued in the

selection of the postmasters for group A and group, B. Criticism has been

made of this order on the ground that the motive for it was political.

Nothing could be further from the truth. The order was made before the

election and in the interest of efficient public service. I have several

times requested Congress to give me authority to put first-, second-, and

third-class postmasters, and all other local officers, including

internal-revenue officers, customs officers, United States marshals, and

the local agents of the other departments under the classification of the

civil-service law by taking away the necessity for confirming such

appointments by the Senate. I deeply regret the failure of Congress to

follow these recommendations. The change would have taken out of politics

practically every local officer and would have entirely cured the evils

growing out of what under the present law must always remain a remnant of

the spoils system.

COMPENSATION TO RAILWAYS FOR CARRYING MAILS

It is expected that the establishment of a parcel post on January 1st will

largely increase the amount of mail matter to be transported by the

railways, and Congress should be prompt to provide a way by which they may

receive the additional compensation to which they will be entitled. The

Postmaster General urges that the department's plan for a complete

readjustment of the system of paying the railways for carrying the mails be

adopted, substituting space for weight as the principal factor in fixing

compensation. Under this plan it will be possible to determine without

delay what additional payment should be made on account of the parcel post.

The Postmaster General's recommendation is based on the results of a

far-reaching investigation begun early in the administration with the

object of determining what it costs the railways to carry the mails. The

statistics obtained during the course of the inquiry show that while many

of the railways, and particularly the large systems, were making profits

from mail transportations, certain of the lines were actually carrying the

mails at a loss. As a result of the investigation the department, after

giving the subject careful consideration, decided to urge the abandonment

of the present plan of fixing compensation on the basis of the weight of

the mails carried, a plan that has proved to be exceedingly expensive and

in other respects unsatisfactory. Under the method proposed the railway

companies will annually submit to the department reports showing what it

costs them to carry the mails, and this cost will be apportioned on the

basis of the car space engaged, payment to be allowed at the rate thus

determined in amounts that will cover the cost and a reasonable profit. If

a railway is not satisfied with the manner in which the department

apportions the cost in fixing compensation, it is to have the right, tinder

the new plan, of appealing to the Interstate Commerce Commission. This

feature of the proposed law would seem to insure a fair treatment of the

railways. It is hoped that Congress will give the matter immediate

attention and that the method of compensation recommended by the department

or some other suitable plan will be promptly authorized.

DEPARTMENT OF THE INTERIOR

The Interior Department, in the problems of administration included within

its jurisdiction, presents more difficult questions than any other. This

has been due perhaps to temporary causes of a political character, but more

especially to the inherent difficulty in the performance of some of the

functions which are assigned to it. Its chief duty is the guardianship of

the public domain and the disposition of that domain to private ownership

under homestead, mining, and other laws, by which patents from the

Government to the individual are authorized on certain conditions. During

the last decade the public seemed to become suddenly aware that a very

large part of its domain had passed from its control into private

ownership, under laws not well adapted to modern conditions, and also that

in the doing of this the provisions of existing law and regulations adopted

in accordance with law had not been strictly observed, and that in the

transfer of title much fraud had intervened, to the pecuniary benefit of

dishonest persons. There arose thereupon a demand for conservation of the

public domain, its protection against fraudulent diminution, and the

preservation of that part of it from private acquisition which it seemed

necessary to keep for future public use. The movement, excellent in the

intention which prompted it, and useful in its results, has nevertheless

had some bad effects, which the western country has recently been feeling

and in respect of which there is danger of a reaction toward older abuses

unless we can attain the golden mean, which consists in the prevention of

the mere exploitation of the public domain for private purposes while at

the same, time facilitating its development for the benefit of the local

public.

The land laws need complete revision to secure proper conservation on the

one hand of land that ought to be kept in public use and, on the other

hand, prompt disposition of those lands which ought to be disposed in

private ownership or turned over to private use by properly guarded leases.

In addition to this there are not enough officials in our Land Department

with legal knowledge sufficient promptly to make the decisions which are

called for. The whole land-laws system should be reorganized, and not until

it is reorganized, will decisions be made as promptly as they ought, or

will men who have earned title to public land under the statute receive

their patents within a reasonably short period. The present administration

has done what it could in this regard, but the necessity for reform and

change by a revision of the laws and an increase and reorganization of the

force remains, and I submit to Congress the wisdom of a full examination of

this subject, in order that a very large and important part of our people

in the West may be relieved from a just cause of irritation.

I invite your attention to the discussion by the Secretary of the Interior

of the need for legislation with respect to mining claims, leases of coal

lands in this country and in Alaska, and for similar disposition of oil,

phosphate, and potash lands, and also to his discussion of the proper use

to be made of water-power sites held by the Government. Many of these lands

are now being withheld from use by the public under the general withdrawal

act which was passed by the last Congress. That act was not for the purpose

of disposing of the question, but it was for the purpose of preserving the

lands until the question could be solved. I earnestly urge that the matter

is of the highest importance to our western fellow citizens and ought to

command the immediate attention of the legislative branch of the

Government.

Another function which the Interior Department has to perform is that of

the guardianship of Indians. In spite of everything which has been said in

criticism of the policy of our Government toward the Indians, the amount of

wealth which is now held by it for these wards per capita shows that the

Government has been generous; but the management of so large an estate,

with the great variety of circumstances that surround each tribe and each

case, calls for the exercise of the highest business discretion, and the

machinery provided in the Indian Bureau for the discharge of this function

is entirely inadequate. The position of Indian commissioner demands the

exercise of business ability of the first order, and it is difficult to

secure such talent for the salary provided.

The condition of health of the Indian and the prevalence in the tribes of

curable diseases has been exploited recently in the press. In a message to

Congress at its last session I brought this subject to its attention and

invited a special appropriation, in order that our facilities for

overcoming diseases among the Indians might be properly increased, but no

action was then taken by Congress on the subject, nor has such

appropriation been made since.

The commission appointed by authority of the Congress to report on proper

method of securing railroad development in Alaska is formulating its

report, and I expect to have an opportunity before the end of this session

to submit its recommendations.

DEPARTMENT OF AGRICULTURE

The far-reaching utility of the educational system carried on by the

Department of Agriculture for the benefit of the farmers of our country

calls for no elaboration. Each year there is a growth in the variety of

facts which it brings out for the benefit of the farmer, and each year

confirms the wisdom of the expenditure of the appropriations made for that

department.

PURE-FOOD LAW

The Department of Agriculture is charged with the execution of the

pure-food law. The passage of this encountered much opposition from

manufacturers and others who feared the effect upon their business of the

enforcement of its provisions. The opposition aroused the just indignation

of the public, and led to an intense sympathy with the severe and rigid

enforcement of the provisions of the new law. It had to deal in many

instances with the question whether or not products of large business

enterprises, in the form of food preparations, were deleterious to the

public health; and while in a great majority of instances this issue was

easily determinable, there were not a few cases in which it was hard to

draw the line between a useful and a harmful food preparation. In cases

like this when a decision involved the destruction of great business

enterprises representing the investment of large capital and the

expenditure of great energy and ability, the danger of serious injustice

was very considerable in the enforcement of a new law under the spur of

great public indignation. The public officials charged with executing the

law might do injustice in heated controversy through unconscious pride of

opinion and obstinacy of conclusion. For this reason President Roosevelt

felt justified in creating a board of experts, known as the Remsen Board,

to whom in cases of much importance an appeal might be taken and a review

had of a decision of the Bureau of Chemistry in the Agricultural

Department. I heartily agree that it was wise to create this board in order

that injustice might not be done. The questions which arise are not

generally those involving palpable injury to health, but they are upon the

narrow and doubtful line in respect of which it is better to be in some

error not dangerous than to be radically destructive. I think that the time

has come for Congress to recognize the necessity for some such tribunal of

appeal and to make specific statutory provision for it. While we are

struggling to suppress an evil of great proportions like that of impure

food, we must provide machinery in the law itself to prevent its becoming

an instrument of oppression, and we ought to enable those whose business is

threatened with annihilation to have some tribunal and some form of appeal

in which they have a complete day in court.

AGRICULTURAL CREDITS

I referred in my first message to the question of improving the system of

agricultural credits. The Secretary of Agriculture has made an

investigation into the matter of credits in this country, and I commend a

consideration of the information which through his agents he has been able

to collect. It does not in any way minimize the importance of the proposal,

but it gives more accurate information upon some of the phases of the

question than we have heretofore had.

DEPARTMENT OF COMMERCE AND LABOR

I commend to Congress an examination of the report of the Secretary of

Commerce and Labor, and especially that part in which he discusses the

office of the Bureau of Corporations, the value to commerce of a proposed

trade commission, and the steps which he has taken to secure the

organization of a national chamber of commerce. I heartily commend his view

that the plan of a trade commission which looks to the fixing of prices is

altogether impractical and ought not for a moment to be considered as a

possible solution of the trust question.

The trust question in the enforcement of the Sherman antitrust law is

gradually solving itself, is maintaining the principle and restoring the

practice of competition, and if the law is quietly but firmly enforced,

business will adjust itself to the statutory requirements, and the unrest

in commercial circles provoked by the trust discussion will disappear.

PANAMA-PACIFIC INTERNATIONAL EXPOSITION

In conformity with a joint resolution of Congress, an Executive

proclamation was issued last February, inviting the nations of the world to

participate in the Panama-Pacific International Exposition to be held at

San Francisco to celebrate the construction of the Panama, Canal. A

sympathetic response was immediately forthcoming, and several nations have

already selected the sites for their buildings. In furtherance of my

invitation, a special commission visited European countries during the past

summer, and received assurance of hearty cooperation in the task of

bringing together a universal industrial, military, and naval display on an

unprecedented scale. It is evident that the exposition will be an accurate

mirror of the world's activities as they appear 400 years after the date of

the discovery of the Pacific Ocean.

It is the duty of the United States to make the nations welcome at San

Francisco and to facilitate such acquaintance between them and ourselves as

will promote the expansion of commerce and familiarize the world with the

new trade route through the Panama Canal. The action of the State

governments and individuals assures a comprehensive exhibit of the

resources of this country and of the progress of the people. This

participation by State and individuals should be supplemented by an

adequate showing of the varied and unique activities of the National

Government. The United States can not with good grace invite foreign

governments to erect buildings and make expensive exhibits while itself

refusing to participate. Nor would it be wise to forego the opportunity to

join with other nations in the inspiring interchange of ideas tending to

promote intercourse, friendship, and commerce. It is the duty of the

Government to foster and build up commerce through the canal, just as it

was the duty of the Government to construct it.

I earnestly recommend the appropriation at this session of such a sum as

will enable the United States to construct a suitable building, install a

governmental exhibit, and otherwise participate in the Panama-Pacific

International Exposition in a manner commensurate with the dignity of a

nation whose guests are to be the people of the world. I recommend also

such legislation as will facilitate the entry of material intended for

exhibition and protect foreign exhibitors against infringement of patents

and the unauthorized copying of patterns and designs. All aliens sent to

San Francisco to construct and care for foreign buildings and exhibits

should be admitted without restraint or embarrassment.

THE DISTRICT OF COLUMBIA AND THE CITY OF WASHINGTON

The city of Washington is a beautiful city, with a population of 352,936,

of whom 98,667 are colored. The annual municipal budget is about

$14,000,000. The presence of the National Capital and other governmental

structures constitutes the chief beauty and interest of the city. The

public grounds are extensive, and the opportunities for improving the city

and making it still more attractive are very great. Under a plan adopted

some years ago, one half the cost of running the city is paid by taxation

upon the property, real and personal, of the citizens and residents, and

the other half is borne by the General Government. The city is expanding at

a remarkable rate, and this can only be accounted for by the coming here

from other parts of the country of well-to-do people who, having finished

their business careers elsewhere, build and make this their permanent place

of residence.

On the whole, the city as a municipality is very well governed. It is well

lighted, the water supply is good, the streets are well paved, the police

force is well disciplined, crime is not flagrant, and while it has purlieus

and centers of vice, like other large cities, they are not exploited, they

do not exercise any influence or control in the government of the city, and

they are suppressed in as far as it has been found practicable. Municipal

graft is inconsiderable. There are interior courts in the city that are

noisome and centers of disease and the refuge of criminals, but Congress

has begun to clean these out, and progress has been made in the case of the

most notorious of these, which is known as "Willow Tree Alley." This

movement should continue.

The mortality for the past year was at the rate Of 17.80 per 1,000 of both

races; among the whites it was 14.61 per thousand, and among the blacks

26.12 per thousand. These are the lowest mortality rates ever recorded in

the District.

One of the most crying needs in the government of the District is a

tribunal or public authority for the purpose of supervising the

corporations engaged in the operation of public utilities. Such a bill is

pending in Congress and ought to pass. Washington should show itself under

the direction of Congress to be a city with a model form of government, but

as long as such authority over public utilities is withheld from the

municipal government, it must always be defective.

Without undue criticism of the present street railway accommodations, it

can be truly said that under the spur of a public utilities commission they

might be substantially improved.

While the school system of Washington perhaps might be bettered in the

economy of its management and the distribution of its buildings, its

usefulness has nevertheless greatly increased in recent years, and it now

offers excellent facilities for primary and secondary education.

From time to time there is considerable agitation in Washington in favor of

granting the citizens of the city the franchise and constituting an

elective government. I am strongly opposed to this change. The history of

Washington discloses a number of experiments of this kind, which have

always been abandoned as unsatisfactory. The truth is this is a city

governed by a popular body, to wit, the Congress of the United States,

selected from the people of the United States, who own Washington. The

people who come here to live do so with the knowledge of the origin of the

city and the restrictions, and therefore voluntarily give up the privilege

of living in a municipality governed by popular vote. Washington is so

unique in its origin and in its use for housing and localizing the

sovereignty of the Nation that the people who live here must regard its

peculiar character and must be content to subject themselves to the control

of a body selected by all the people of the Nation. I agree that there are

certain inconveniences growing out of the government of a city by a

national legislature like Congress, and it would perhaps be possible to

lessen these by the delegation by Congress to the District Commissioners of

greater legislative power for the enactment of local laws than they now

possess, especially those of a police character.

Every loyal American has a personal pride in the beauty of Washington and

in its development and growth. There is no one with a proper appreciation

of our Capital City who would favor a niggardly policy in respect to

expenditures from the National Treasury to add to the attractiveness of

this city, which belongs to every citizen of the entire country, and which

no citizen visits without a sense of pride of ownership. We have had

restored by a Commission of Fine Arts, at the instance of a committee of

the Senate, the original plan of the French engineer L'Enfant for the city

of Washington, and we know with great certainty the course which the

improvement of Washington should take. Why should there be delay in making

this improvement in so far as it involves the extension of the parking

system and the construction of greatly needed public buildings?

Appropriate buildings for the State Department, the Department of justice,

and the Department of Commerce and Labor have been projected, plans have

been approved, and nothing is wanting but the appropriations for the

beginning and completion of the structures. A hall of archives is also

badly needed, but nothing has been done toward its construction, although

the land for it has long been bought and paid for. Plans have been made for

the union of Potomac Park with the valley of Rock Creek and Rock Creek

Park, and the necessity for the connection between the Soldiers' Home and

Rock Creek Park calls for no comment. I ask again why there should be delay

in carrying out these plans We have the money in the Treasury, the plans

are national in their scope, and the improvement should be treated as a

national project. The plan will find a hearty approval throughout the

country. I am quite sure, from the information which I have, that, at

comparatively small expense, from that part of the District of Columbia

which was retroceded to Virginia, the portion including the Arlington

estate, Fort Myer, and the palisades of the Potomac can be acquired by

purchase and the jurisdiction of the State of Virginia over this land ceded

to the Nation. This ought to be done.

The construction of the Lincoln Memorial and of a memorial bridge from the

base of the Lincoln Monument to Arlington would be an appropriate and

symbolic expression of the union of the North and the South at the Capital

of the Nation. I urge upon Congress the appointment of a commission to

undertake these national improvements, and to submit a plan for their

execution; and when the plan has been submitted and approved, and the work

carried out, Washington will really become what it ought to be--the most

beautiful city in the world.