PART I

To the Senate and House of Representatives:

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

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

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

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

REORGANIZATION OF THE STATE DEPARTMENT

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

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

MERIT SYSTEM IN CONSULAR AND DIPLOMATIC CORPS

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

STATISTICS AS TO MERIT AND NONPARTISAN CHARACTER OF APPOINTMENTS

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

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

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

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

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

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

DIPLOMACY A HAND MAID OF COMMERCIAL INTERCOURSE AND PEACE

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

SUCCESSFUL EFFORTS IN PROMOTION OF PEACE

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

CHINA

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

CENTRAL AMERICA NEEDS OUR HELP IN DEBT ADJUSTMENT

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

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

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

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

ENFORCEMENT OF NEUTRALITY LAWS

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

VISIT OF SECRETARY KNOX TO CENTRAL AMERICA AND THE CARIBBEAN

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

OUR MEXICAN POLICY

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

AGRICULTURAL CREDITS

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

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

INCREASE OF FOREIGN TRADE

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

ADVANTAGE OF MAXIMUM AND MINIMUM TARIFF PROVISION

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

NECESSITY FOR SUPPLEMENTARY LEGISLATION

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

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

BUSINESS SECURED TO OUR COUNTRY BY DIRECT OFFICIAL EFFORT

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

SPECIAL CLAIMS ARBITRATION WITH GREAT BRITAIN

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

FUR SEAL TREATY AND NEED FOR AMENDMENT OF OUR STATUTE

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

FINAL SETTLEMENT OF NORTH ATLANTIC FISHERIES DISPUTE

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

IMPERIAL VALLEY AND MEXICO

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

CHAMIZAL DISPUTE

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

INTERNATIONAL COMMISSION OF JURISTS

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

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

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

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

EUROPE AND THE NEAR EAST

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

SPITZBERGEN

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

LIBERIA

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

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

MOROCCO

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

THE FAR EAST

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

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

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

SPECIAL MISSION OF CONDOLENCE TO JAPAN

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

SOUTH AMERICA

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

Last year a revolution against the established Government of Ecuador broke
out at the principal port of that Republic. Previous to this occurrence the
chief American interest in Ecuador, represented by the Guayaquil &amp; 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.

PART III. 
[Concerning the Work of the Departments of the Post Office, Interior, 
Agriculture, and Commerce and Labor and District of Columbia.]

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.