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.

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