To the Senate and House of Representatives:

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

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

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

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

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

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

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

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

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

PEACE COMMISSION.

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

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

GREAT BRITAIN AND CANADA.

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

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

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

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

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

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

THE NEAR EAST. TURKEY.

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

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

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

THE FAR EAST.

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

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

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

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

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

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

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

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

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

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

LATIN AMERICA.

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

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

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

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

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

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

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

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

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

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

TARIFF NEGOTIATIONS.

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

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

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

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

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

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

FOSTERING FOREIGN TRADE.

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

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

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

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

AMERICAN BRANCH BANKS ABROAD.

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

AID TO OUR FOREIGN MERCHANT MARINE.

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

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

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

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

FEDERAL PROTECTION TO ALIENS.

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

MERIT SYSTEM FOR DIPLOMATIC AND CONSULAR SERVICE.

I also strongly commend to the favorable action of the Congress the
enactment of a law applying to the diplomatic and consular service the
principles embodied in Section 1753 of the Revised Statutes of the United
States, in the Civil Service Act of January 16, 1883, and the Executive
Orders of June 27, 1906, and of November 26, 1909. The excellent results
which have attended the partial application of Civil Service principles to
the diplomatic and consular services are an earnest of the benefit to be
wrought by a wider and more permanent extension of those principles to both
branches of the foreign service. The marked improvement in the consular
service during the four years since the principles of the Civil Service Act
were applied to that service in a limited way, and the good results already
noticeable from a similar application of civil service principles to the
diplomatic service a year ago, convince me that the enactment into law of
the general principles of the existing executive regulations could not fail
to effect further improvement of both branches of the foreign service,
offering as it would by its assurance of permanency of tenure and promotion
on merit, an inducement for the entry of capable young men into the service
and an incentive to those already in to put forth their best efforts to
attain and maintain that degree of efficiency which the interests of our
international relations and commerce demand.

GOVERNMENT OWNERSHIP OF OUR EMBASSY AND LEGATION PREMISES.

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

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

TREASURY DEPARTMENT.

ESTIMATES FOR NEXT YEAR'S EXPENSES.

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

A FIFTY-TWO MILLION CUT.

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

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

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

TYPICAL ECONOMIES.

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

AUDITING SYSTEM.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Department of Commerce and

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

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