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John F. Wallace, Chief Engineer. Personal.

Mr. WILLIAM N. CROMWELL,

ISTHMIAN CANAL COMMISSION,
Panama, March 15, 1905.

Attorney, Panama Railroad Company, New York City.

MY DEAR MR. CROMWELL: I am in receipt of your cable.

What did I ever do to you that would cause you to try to get even by saddling the Panama Railroad on me? I never harmed you in word, look, or thought, and always had the very kindest feelings for you. In common with other American citizens I have always appreciated the great service which you performed in making the construction of the Panama Canal by Americans possible. And to think that underneath that most agreeable countenance of yours there should lurk a malicious heart!

It is such things as these that undermines one's faith in Humanity and causes one to take a pessimistic view of life, from which recovery is impossible. Time, the healer of all things, may eventually enable me to forgive you. Your present personal safety, however, depends solely on the 2,000 miles of rolling ocean lying between New York and Colon.

I suppose some day if you continue to be controlled by malicious motives you will see that the title is changed to one more in accord with what I have been accustomed, so that my railroad friends will not consider me as being promoted down the ladder. When a man makes his first misstep, like you have, there is no telling to what extent he may ultimately be induced to go.

Yours, truly,

Mrs. Wallace desires to be remembered to you.

JOHN F. WALLACE..

The jocularity and friendly tone of this letter does not indicate that the writer suspected disaster from his correspondent at that time.

Mr. Wallace says that while he approved of the plan of reorganization and expressed his approval of it, it was not until he got aboard ship and was on his way down to the Isthmus that, in thinking over matters, he reached his final conclusion that he would resign for one reason among others that Cromwell was a dangerous man and would lead the Canal enterprise to disaster. Compare this with what he wrote to Mr. Cromwell two days after he had landed on the Isthmus:

ISTHMIAN CANAL COMMISSION,
Panama, May 26, 1905.

John F. Wallace, Chief Engineer.

Mr. WILLIAM NELSON CROMWELL,

49 Wall Street, New York.

MY DEAR MR. CROMWELL: During my restful voyage to the Isthmus on the Segurantha, while mulling over various matters connected with our work, my mind repeatedly returned to the words of advice and counsel which I received from you, particularly the conversation which we had at your house, where Mrs. Cromwell and yourself so kindly entertained us the night before our departure.

The more thought I give the matter the more I am impressed with your words of wisdom, and it is needless for me to say that I will endeavor to carry out the policy outlined.

In looking back over the events of the last few months, I become more and more impressed with the wisdom underlying the action of the President and the Secretary of War, as well as with the wisdom of their "privy counsel" and the tactful manner in which matters have been guided through the troubled waters of the sea of complication which has surrounded the situation.

While my own manners and methods are, as you know, blunt and direct, my .deficiencies in this direction only serve to enhance the appreciation I have of the skilled and polished diplomat who has made this great work a possibility, and whose thoughtful care and guiding hand will be most important factors in the ultimate success of the enterprise.

In closing, permit me, my dear Mr. Cromwell, "to lift my hat to you."

Sincerely, yours,

JOHN F. WALLACE.

Senator MORGAN. Did you show that letter of Magoon's to Cromwell before Mr. Wallace arrived from the Isthmus?

Secretary TAFT. My recollection is that I did, sir.

These letters seriously affect the credibility of Mr. Wallace's testimony before this committee as to why he deserted the post of danger at the Isthmus and are enough in themselves to show that the basis of my criticism of him at the Manhattan Hotel was accurate. The reasons which Mr. Wallace has now given in his evidence for his action are mere afterthoughts; they were not present in his mind at the interview at the Manhattan Hotel, and they never were the real reasons for his action. It happened, as I have already said, that by the greatest good fortune, on behalf of the Philippine government I had employed Mr. John. F. Stevens as consulting engineer to supervise the construction of railroads in the Philippines. Mr. Stevens had gone west to Chicago to make ready to go with the Philippine party to Manila. As soon as it was decided that Mr. Wallace would not continue as chief engineer I directed Mr. Shonts to make inquiry every where in regard to Mr. Stevens's qualifications as chief constructive engineer to build the canal. To my great relief the answers procured within two days were most satisfactory, and then the question was, Would Mr. Stevens accept? Mr. Stevens took time to consider, consulted Mrs. Stevens, and finally consented, at a salary of $30,000, to accept the responsible office. In this most remarkable way we succeeded in obtaining one of the very few men in this country capable of performing the task, although we had but two or three days in which to do it. Had we been as unfortu nate in selecting a chief engineer for the work as Mr. Wallace was in securing his two chief assistant engineers we should have been delayed more than a year in finding the proper man.

Mr. James J. Hill, probably the greatest American railroad constructor, has told me that he has known Mr. Stevens for seventeen years, and that if we had searched the country over and every competent person had been willing to accept we could not have obtained a man better adapted to the peculiar work of building the canal than Mr. Stevens. Everything that Mr. Stevens has done since he has been in the employ of the Commission as chief engineer justifies this estimate of Mr. Hill, and I am sincerely thankful that at a time when everything seemed most dark and discouraging in the construction of the canal, and when the climax of trouble was reached in the retirement of Mr. Wallace, we were able to secure Mr. Stevens.

THE MARKEL CONTRACT.

Everything with respect to the Markel contract occurred while I was in the Philippines, except the action on it by the railroad directory, which occurred while I was making my trip to the Isthmus in November, 1905. In my letter transmitting the annual report of the Commission I discussed the whole subject and have nothing to add to it, except to say that I am strongly convinced by the evidence that Mr. Shonts acted in the utmost good faith and in the earnest desire to secure the best method of feeding the employees on the Isthmus. Mr. Markel struck me as a man of directness and simplicity and one who was willing to do the fair thing.

It is a mistake to suppose that under the original contract there was any power of absolute cancellation by the Government. The power cancellation was conditioned on Markel's failure to satisfy the gen

eral manager of the railroad with the work which he did under the contract, and it is well-established law that the general manager would in expressing his satisfaction or dissatisfaction be obliged to exercise good faith. To substitute for such a cancellation clause without any consideration a clause which gave the absolute right on the part of the Government of cancelling it any time without making compensation for the contractor's outlay and time then incurred, would have been a most inequitable arrangement, and I am sure that the committee will conclude when it takes all of the circumstances into consideration that the action of the President in approving the payment to Markel of a reasonable amount for his expenses and the time he consumed and the trouble to which he was put, was not only just but completely within the President's discretion, as the Attorney General has held.

Senator MORGAN. That was all done by the board of directors of the railroad, was it not?

Secretary TAFT. Yes, sir; but subsequently examined by me, and approved by me in the letter of transmittal.

THE REVOCABLE LICENSE TO THE UNION OIL COMPANY FOR THE CONSTRUCTION OF A PIPE LINE FROM PANAMA TO COLON.

I observe that there has been considerable discussion before this committee of the propriety of the action of the President, taken on my recommendation, in granting a revocable license to the Union Oil Company of California to lay a pipe line from Panama to Colon for the conveyance of crude oil from oil steamers on the Pacific to oil steamers on the Atlantic. I append as Exhibit 27 the entire correspondence on the subject, and shall state the matter as succinctly as I can.

The Union Oil Company's president applied to me for a revocable license to construct the pipe line across the Isthmus. He stated that they were an independent oil company and had no association whatever with the Standard Oil Company; he said they had extensive oil fields in California from which they obtained an excellent quality of crude oil, and that they desired to furnish this oil to the Commission for use in its work on the Isthmus, but that they also and chiefly desired a pipe line across the Isthmus, by which they might transport the oil to New York to refineries about to be constructed, so that they might compete with the Standard Oil Company. I said to them that I could not discuss with them such a proposition unless they had been able to procure from the Panamanian authorities a revocable license for the same thing. At the same time they referred me to Mr. Morton, then Secretary of the Navy, and also to Mr. Metcalf, Secretary of Commerce and Labor, both of whom said they knew the Union Oil Company to be a reputable concern, with capital sufficient to carry out its obligations. I had other assurances from reputable lawyers and business men from San Francisco. In a short time the president of the oil company came to me and presented a license issued to him by the Panamanian Government for the construction of a refining plant in Panama, with a branch at Colon, and a license to construct a pipe line outside of the Zone across the Isthmus. This, he said, would entail great expense and make a very roundabout course, and said he preferred the Zone if we could grant the license. I took the matter to the President and

the Cabinet, and it was decided that a revocable nonexclusive license for a rental of $500 a month might well be granted in the public interest under the conditions which are mentioned in the license, to wit, that the company should furnish oil at the maximum price of 90 cents a barrel at any time when the Commission demanded it; that it would lay its pipe along lines fixed by the chief engineer and that it should move its pipe at any time at the direction of the chief engineer, and that it should move it entirely at the direction of the Commission. At a later date I had a letter from Mr. Lindon W. Bates, representing some Texas oil fields, in which he said he wished to be considered as a bidder for the sale of oil, and to know whether an advertisement would be issued for this purpose inviting competition. I told him what had been done and said to him that we were not now asking for bids on oil, but that in the future it was very probable we should need oil, and that in the meantime if anybody desired to exercise the same privilege which had been granted to the Union Oil Company, for the construction of a pipe line across the Isthmus, it would be granted under exactly the same conditions imposed upon the Union Oil Company. This was some three months ago and I have not heard from Mr. Bates since. Senator McCumber, of North Dakota, wrote me a letter inquiring into the subject of the oil pipe license on the Isthmus, and I sent him all the papers, including the license and the correspondence that I had had with the Union Oil Company and with Mr. Lindon W. Bates. Since that time I have had an application from two oil companies, said to be associated with the Standard Oil Company, in which they requested that the pipe line of the Union Oil Company be made a common carrier. I wrote a letter to the Union Oil Company and asked whether this could be done, and they objected to it on the ground that they had oil enough to use the pipe themselves continuously, and that they did not care to injure the quality of their oil by carrying out such a plan. I advised the agent of the two oil companies making the latest application that I would consider favorably an application on their part to construct a pipe line across the Isthmus, and would allow them, if they desired to do so, to use it as a common carrier at rates to be fixed with the Secretary of War. This I did after conferences with the President and the Cabinet. I have heard nothing from them since that time. Mr. Stevens advised me that there was plenty of room for half a dozen pipe lines across the Isthmus and that they would not interfere with his work at all if he had the right to say where they should go. My idea has been that this would not only tend to introduce competition into the oil business in the East, but also that when the work on the Isthmus had reached a greater state of development than it now is in, it would probably be possible for us to use oil much more economically than coal, and that with two or three pipe lines we could succeed in getting oil at a very reasonable rate. There is absolutely no preference to anybody in this arrangement. The Union Oil Company is going ahead to build its pipe line and shows the genuineness of the offer by the promptness with which it has complied with the conditions of the revocable license. If anybody else desires the same privilege, it is open to him. When the Government comes to buy oil it will advertise for bids and buy it from the bidder who will deliver his oil at the cheapest rate whether by pipe line or otherwise.

THE QUESTION OF LABOR.

With deference to the opinion of men much more experienced in the matter than I, I venture to say that we shall have to build the canal with tropical negro labor, expensive as it is. It may be that we shall secure Spaniards or other white men who are able to withstand the tropical sun, but at present I see but little prospect of it.

Chinamen do not make better laborers than other people when imported without their bosses or No. 1 men who have absolute control over them. They have been tried on the Isthmus before, and showed themselves quite subject to disease and also to discouragement leading to suicide. The negro labor of the West Indies is inexhaustible so far as our demands go, and it seems to me that we must rely on training them, eliminating the poor and rewarding the more industrious and competent. I do not think that Mr. Shonts and Mr. Stevens agree with me in this, and I am quite willing to follow them in any experiment within the law which will lead to a different result from that I anticipate. But this is my present judgment.

SHALL THE CANAL BE BUILT BY CONTRACT?

Of course the canal ought to be built by contract if it can be so built, and I think every one who knows about the situation believes that ultimately it will be possible in the interests of the Government to make proper contracts; but I beg the committee in the discussion of this subject to bear in mind that at present it is utterly impossible to frame a law which shall be of any assistance in furthering the construction of the canal by contract. The Government is bound to proceed with construction for some time in order that it may itself learn the cost of doing work under the conditions that exist on the Isthmus, and in order that contractors may learn from the actual conditions the prices which they can afford to bid for the work to be done. Mr. Stevens told me that he thought it might require a year before all the plans and specifications for the work could be concluded.

He is now almost ready to begin work on the construction of the canal as soon as its type is determined, and the making of plans and specifications would not interfere at all with his proceeding upon the work, which does not need the completion of plans and specifications to begin and continue it.

Certainly a year, and probably more, must elapse before the time arrives in which invitations for bids should be prepared, and then six months or even longer time should be given, in order that possible bidders may have the opportunity to examine the Isthmus and make sure of the work they will have to do. If bids were opened now, bidders would be in the dark, and the result would be much higher prices because of the large element of risk due to lack of knowledge which would enter into the fixing of every bid, and thereby increase it largely. There is not the slightest disposition on the part of anyone for the Government itself to build the canal. It will be much better to have the Government make the contracts and then use the chief engineer and such subordinates as may be necessary to supervise the work and see that the contracts are properly performed and their terms complied with. But there are many difficult questions to be settled as to the way in which such contracts ought to be let, whether the work ought to be

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