the commerce of the world, as well as for our own shipping, some $375,000,000 possibly it may run to $400,000,000 if the Senator's suggestion should be carried out and we should add $25,000,000 for Colombia. That is a very large sum invested quite outside of our territorial domain upon an international highway. It would seem a safe and prudent fiscal policy to adopt to make that enterprise carry itself so that we may have $400,000,000 more to invest in the development of our resources within the country.

Senator BRISTOW. Do you regard this as not useful in the development of our resources?

Prof. JOHNSON. Very useful; and, as I point out in the statement I have drafted, those who use the canal will derive direct and rather large profits from the use of it. They can, without burden to themselves, relieve the taxpayers of the country of this annual expense and of this capital investment.

The CHAIRMAN. Who will be the principal users of the canal in commerce, Professor?

Prof. JOHNSON. To answer your question as specifically as I can, Senator, my estimate is that during the early years of the operation of this canal, during 1915 or 1916-I do not say 1915, because it takes commerce some time to readjust itself to new routes and new conditions of trade-but during the initial years the figures indicate that the total net tonnage of vessels passing through the canal will be some 10,500,000 a year. Of that, 1,000,000 tons will probably be tonnage contributed by the commerce between our two seaports.

The CHAIRMAN. Are you bearing in mind in that estimate that the railroad-owned ships will be excluded from the canal largely?

Prof. JOHNSON. I am aware of that law, yes; and that those figures were made before that law was passed.

Senator BRANDEGEE. Just there; there will not be so many railroadowned ships as there were, will there?

Prof. JOHNSON. I do not think the tonnage coastwise will be less than 1,000,000 tons in 1915-16.

Senator THORNTON. I take the liberty at this time to make the suggestion that was made two years ago and which was adopted by the committee and which I thought worked very well, and that was, when a witness had a connected statement to make to the committee that he he be allowed to make it and that all members of the committee who wished to ask questions of him would make notes as he went along of what they wished to propound to him afterwards and do it then without breaking in on the thread of his statement. I think it makes the proceedings a great deal better.

The CHAIRMAN. You may conclude your answer to this question, then we will resume and follow that course.

Prof. JOHNSON. It just happens, Senator Thornton, that the chairmen's question was in direct line with my statement.

Senator THORNTON. I made that as a general suggestion. Prof. JOHNSON. I stated that of the 10,500,000 tons of shipping that will probably use the canal annually in 1915 and 1916, 1,000,000 tons will be contributed by the coast-to-coast shipping, and some 720,000 tons by American shipping, carrying the foreign trade of the United States. The remainder of the shipping, some 8,780,000 tons, consisting of foreign shipping carrying commerce of the United States and of other countries.

The tonnage of the Suez Canal during the decade ending in 1912 increased 72 per cent, although in 1902 it had already reached a relatively high figure. Of course it needs no argument to prove that the rate of increase in tonnage in the case of a canal like the Suez or the Panama must be higher in the early years when it is rising from small beginnings to a larger business, and so I have estimated, in order to be conservative, that we may look forward confidently to a 60 per cent increase in the traffic of the Panama Canal during the first 10 years. That would bring its tonnage to 17,000,000 in 1925. But of course we would expect a more than average rate of increase in the tonnage between the two seaboards and while it is pure estimate I have assumed that the tonnage between our two seaboards will double during the first decade, making that 2,000,000 tons in 1925, out of a total of 17,000,000 tons, leaving some 15,000,000 tons not coastwise in 1925.

If that answers the question of tonnage, shall I turn to the revenue?
The CHAIRMAN. Yes.

Prof. JOHNSON. The President has fixed the tolls at $1.20.
Senator THOMAS. $1.20 or $1.25?

Prof. JOHNSON. $1.20. The law stated that the tolls should not exceed $1.25. I may say that the rate of $1.20 was decided upon very largely because the rate of the tolls now at Suez is practically $1.20.

If the rate of tolls of $1.20 be assessed upon 10,500,000 tons of shipping at the beginning, it will yield an initial revenue of some $12,600,000, if all ships, coastwise and foreign pay. If the rate of $1.20 per ton be maintained through the decade our revenues would rise, according to my estimate, to $20,400,000, of which, in 1925, $2,400,000 would be from tolls payable by the coastwise shipping.

But I do not look forward to a continuance of the rate of $1.20 a ton. The Suez Canal Co. has reduced its rate of tolls four times since 1903, the rate now being 6.25 francs. It is more than probable that the Congress will call upon the President to reduce the tolls during the next decade perhaps to $1 per ton. If so, we may look forward to a possible revenue of $17,000,000 in 1925, if all vessels pay tolls, and possibly $15,000,000 if coastwise vessels do not pay. If our revenue should be $15,000,000, our receipts would be less than the operating expenses, plus the annuity, plus an interest of 3 per cent on the initial investment. We would have nothing to amortize the debt and we would have no surplur for the certain betterments and improvements that we must expect to make during the second decade of the canal's operation.

In other words, these calculations indicate clearly that the United States will need to collect tolis from the owners of the ships engaged in the American coastwise trade in order to secure revenues large enough to meet the canal's current expenses and its capital charges. The United States can be justified in relieving the coastwise carriers from the payment of tolls, and thus in reducing the canal revenues by $18,000,000 or $20,000,000 during the first decade of the operation of the waterway, only upon the condition that the general public rather than the owners of the coastwise vessels, will profit from the loss of revenue to the Government. Who will gain by toll exemption, the coastwise carriers or the general public?

That brings me to the second part of my general statement. Shall I proceed?

Senator SIMMONS. In this statement you are not dealing with the treaty obligations?

Prof. JOHNSON. I am speaking entirely from an economic standpoint and at present from a domestic standpoint entirely and not from the international point of view.

Probably the strongest argument that has been urged by those who favor the exemption of the owners of the coastwise ships from the payment of tolls is that the freight rates paid by ships, both by coastwise and water routes, and what is far more important, by the all-rail lines across the country will be lower by the amount of tolls not paid for the use of the Panama Canal. This argument assumes that the carriers by water will compete so actively with each other and with the railroads as to bring the rates as low as the cost of the service will allow; and that if the cost of transportation by water between the two seaboards is increased by canal tools the rates of the water carriers must be, and the charges of the rail lines will be higher by the amount of the canal tolls. This reaches to the core of the theory of rate making. Will the adjustment of the rates of the coastwise carriers and of the railroads be the result of a rate- controlling competition among the water lines, and will it be the policy of the railroads to compete actively with the coastwise carriers for practically all of the traffic moving between the two seaboards?

I have presented this argument, Senators, somewhat fully in my official report to the President, and I hesitate to impose upon the committee this economic argument, the purpose of which is to show that the exemption of the coastwise ship cwners from the payment of tolls will not necessarily bring about a decrease in the rates of the water carriers and of the rail lines between the two seaboards. Possibly it will suffice if in my oral statement I merely summarize that argument.

The CHAIRMAN. I think it will.

Senator PAGE. Your report will be included in the record, will it? Prof. JOHNSON. I understand the committee so wishes.

The CHAIRMAN. Yes.

Senator SIMMONS. That is a very acute and important question and I hope you will make your summary as full as you feel justified in making it.

Prof. JOHNSON. I know you are very considerate, but I do not with to impose on your generosity.

The effect which canal tolls upon coastwise shipping will have upon rail and water rates, and the adjustment of the charges of coastwise carriers and the railroads engaged in handling traffic between the two seaboards of the United States may be summarized as follows:

The rates on traffic handled by regular steamship lines between the two seaboards will be but slightly affected by canal tolls. Only such producers and traders as use vessels which they own or charter for the shipment of full cargoes will profit by the exemption of the coastwise shipping from tolls. Probably 99 out of every 100 shippers will pay the same rates whether there be tolls or not. Most of the intercoastal traffic will consist of general commodities and package freight handled by the established steamship lines.

Bulk cargoes of lumber, coal, ore, and heavy steel products will comprise a relatively small share of the total traffic. The rates charged by the several steamship lines will be the same. The charges will be regulated by agreements among the competing companies and will be fixed primarily with reference to what the traffic will bear and only secondarily, if at all, with reference to the cost of the service to the carriers. The several steamship lines will maintain relatively stable schedules of charges which will ordinarily be adjusted with reference to the even more stable schedules of commodity and class rates maintained by the transcontinental railroads and their eastern rail connections. If the regular steamship lines are required to pay Panama tolls, their payments to the Government will be a part of their operating expenses which will thus be increased by the amount of the tolls. If the steamship companies are exempted from the payment of tolls, they will thereby receive a subsidy equal to the amount of the tolls not collected by the Government. Secretary of State Knox was entirely correct when he stated in his reply to the note of Sir Edward Gray that

The exemption of the coastwise trade from tolls granted by the United States to that trade.

The CHAIRMAN. This is your view, is it?

is merely a subsidy

Prof. JOHNSON. That is quoted from Secretary Knox's reply.

The CHAIRMAN. And you indorse it?

Prof. JOHNSON. It is my view, and it seems to be the view of the successor of Secretary Knox.

The CHAIRMAN. Then you think all the ships using the Soo Canal, for instance, are enjoying a subsidy?

Prof. JOHNSON. Yes, sir.

The CHAIRMAN. You do?
Prof. JOHNSON. Yes.

The CHAIRMAN. And the tonnage in the Soo Canal is much larger than that of the Suez Canal, is it not?

Prof. JOHNSON. It is larger, although not so large as it would

seem

The CHAIRMAN. Is it not three times as large as the tonnage in the Suez Canal?

Prof. JOHNSON. It is probably twice as large; yes.

The CHAIRMAN. Is it not three times as large?

Prof. JOHNSON. I have not the figures of the Soo in mind exactly, but I assume

The CHAIRMAN. Then in principle you see no distinction with respect to the subsidy feature between allowing American coastwise. vessels to go through the Panama Canal free of toll and the permission to American coastwise vessels to use the Soo and other American canals on this continent without the payment of tolls-in both instances they represent subsidies, in your judgment?

Prof. JOHNSON. Yes; one of which is justifiable and the other is not. The CHAIRMAN. Will you state how the one is justifiable and the other is not?

Prof. JOHNSON. In the case of the Soo Canal, as in the case of other canals within the country, and of improved inland waterways, there may be a very good economic and political reason why we should adhere to the principal of the act of 1884, which stipulates that the in

land waterways of the United States, natural and improved, shall be free of any tolls. That is a matter of general commercial development of the country, a burden which is well distributed and may be borne at least for the time being, by the general public. I am not convinced that we shall always find it wise as an economic or fiscal policy to exempt the Soo Canal and other large inland waterways from charges imposed upon shipping. Germany, for instance, is seriously considering the policy of charging not only, as she now does, tolls on her canals, but charges for the use of the canalized rivers, it being felt that the budget of the States will not very much longer justifiably stand the strain of this present burden which is maintained to make freer the shipping intercourse of the country.

The CHAIRMAN. I am simply trying to get your own individual views as an economic proposition, as to why tolls should be imposed upon American vessels using the Soo Canal.

Prof. JOHNSON. For the present, no, it should not.

The CHAIRMAN. In the future you think charges ought to be made? Prof. JOHNSON. In the future I think they should probably be made. The other part of the question was, Why should we put tells upon American vessels passing through the Panama Canal?

The CHAIRMAN. Yes.

Prof. JOHNSON. The Panama Canal, as far as our coastwise trade is concerned, is used by shipping employed over routes 5,000 miles or more in length, in some cases more and in some cases less. The average would be about 5,000 miles. It is essentially international trade in character. It is trade between the two seaboards of the United States. In type of ship, in length of voyage, and in commercial characteristics it is not similar to the rest of our coastwise trade. Then again the Panama Canal is a very expensive work. It will have cost us possibly $400,000,000.

The CHAIRMAN. You know we expended almost $800,000,000 of American money in the development of our interior waterways, natural and artificial?

Prof. JOHNSON. I believe we have thus expended that amount.

The CHAIRMAN. And we have never exacted tolls from our American vessels using those waterways?

Prof. JOHNSON. We have certainly not since 1884. I think we may have before that.

Senator SIMMONS. We have not exacted tolls from foreign nations using those waters?

Prof. JOHNSON. No; foreign vessels come up to Philadelphia, 100 miles from the seaboard, and make use of our improved channel to Philadelphia.

Senator SIMMONS. They make use of the Soo, too, do they not? Prof. JOHNSON. They make use of the Delaware breakwater protection; the Delaware River lights, and all that, without any charge. Senator THOMAS. I did not intend to interrupt you at all, but inasmuch as the chairman's inquiry suggested one to me, I should like to ask you this simple question: Do you consider the provision of the new tariff giving a discrimination of 5 per cent upon merchandise brought to the United States in American bottoms a subsidy? Prof. JOHNSON. Yes.

The CHAIRMAN. You may resume your statement now, if you

will.