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limitations, and possession, and so on; and I shall be very glad to look into that subject and make a recommendation on it, if you desire.

Senator MORGAN. I wish you would.

Senator ANKENY. In this matter of the stock, Mr. Secretary, was it all transferred to you-every share?

Secretary Taft. Every share was transferred to me, and then this course was taken: The railroad company is a corporation chartered under the laws of New York. Each director who was elected paid $100 for his share of stock.

Senator ANKENY. To make him eligible?

Secretary Taft. To make him eligible; and I transferred, or by my direction that share of stock was transferred, to him, and the money which came from it was deposited in the Treasury of the United States. Then he gave back to me an agreement to sell back to me that share of stock at $100 a share.

Senator ANKENY. The ownership of ten shares made him eligible? Secretary Tart. The ownership of one share made him eligible. Senator ANKENY. They are $100 shares, are they not?

Secretary Taft. They are $100 shares, and each director executed a power of attorney to me to transfer that share upon my exercising the option.

Senator Krox. That is the same arrangement that Hyde had with the Equitable directors; so you are a “dummy director ?"

Secretary Tatt. Well, I do not know exactly what kind of directors you can have where the Government owns all the stock and wishes to retain the control of it.

Senator Kyox. It is perfectly proper, of course.

Secretary TAFT. And I do not know whether the directors would resent being called “dummy directors.” If that is what makes a dummy director, then they are dummies. I have the shares of stock in my control, with powers of attorney authorizing me to transfer them; and my recollection is that I gave back to each one of the directors $10 as an earnest of the bargain. It was made as elaborate as possible for the purpose of having a consideration for the option. So that I do not know any other device that could be used to make the Government more certain with respect to the ownership of the entire capital stock and still secure literal compliance with the statute of New York as to qualifying the directors.

Senator MORGAN. I was about to make a suggestion just on that point, which has been before us all the time and has been a source of trouble, about the exercise of authority over the railroad under the laws of New York, the charter, etc.-the exercise of governmental authority under the laws of Congress.

Secretary Tarr. Yes, sir. Senator MORGAN. Would it not be very well to ask the legislature of New York (which is now in session, you know) to transmit, if you please, I do not know whether I use the correct word–or, at all events, to abandon in favor of the United States the full and entire control of that corporation?

Secretary Taft. Well, Senator, there are certain questions that would be difficult to meet if you attempted that kind of a conversion, unless you took the additional course of voting the money to take up, as you might, all the bonds and secure the cancellation of the mortgage on the railroad property.

Senator MORGAN. I think that is one of the first duties we ought to perform.

Secretary TAFT. That can be done.
Senator MORGAN. I think we ought to clean off that debt.

Secretary TAFT. That can be done by redemption of the bonds. I think all the bonds can be redeemed. There are two classes, and I may be inaccurate with respect to one of them. I think all the bonds can be redeemed at 105.

Senator GORMAN. The 6 per cents and all?
Secretary Taft. The 41 per cents.
Senator GORMAN. Yes; only those?

Secretary Tart. I doubt about the others. As long as there is that private interest in the corpus of the company

Senator ANKENY. The Panama Railroad Company?

Secretary Taft (continuing). The Panama Railroad Company. I do not think that such a radical provision as that which you suggest would be quite just to the interests of the mortgage bondholders; and possibly, therefore, it would be beyond the power of the New York legislature to enact.

Senator Kxox. On that subject, could not the United States condemn the lien and force the payment of the bonds?

Secretary Taft. Well, I suppose it could; yes. I suppose that course might be taken if it is worth while; but it is an anomalous situation. The character of the railroad company as a business corporation offers some facilities in the administration down there that it would not enjoy as a Government railroad, unless you inserted a good many enabling provisions in your act. For instance, the law requires that every dollar of money that comes in from the property of the United States shall be deposited in the Treasury of the United States. That would require every dollar that is collected for a ticket on the Isthmus to be put in the Treasury of the United States. It would be utterly impracticable to run a railroad under those circumstances; and it would hardly be in accord with international faith for us to take away, even if you desired to do so suppose, of course, you

do not-the public character of the road in its obligation to discharge what a common carrier always has to discharge, viz., the duty of carrying of freight that is offered to it.

Senator KITTREDGE. Are we not bound to maintain that condition with reference to the railroad!

Secretary Taft. I think you are; yes, sir. I think you are; and of course, therefore, you would have to give the ordinary powers that a railroad exercises every day to accomplish that result. And I am not sure but that we have happened in to the best solution of the railway question. Of course the payment of the bonds may be discussed aside from the question of changing the identity of the railroad.

Senator KITTREDGE. So long as those bonds are outstanding, Mr. Secretary, has not the bondholder the right to insist in court upon the preservation of the identity of the property?

Secretary TAFT. I think he has, sir; yes, sir.

Senator KITTREDGE. In order to preserve his lien, if necessary to enforce it?

Secretary TAFT. Yes, sir.

Senator Knox. There would be no legal objection to taking up those bonds hy process of condemnation, and then Congress chartering this railroad and having it exclusively under Federal control, would there?

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Secretary Taft. No, sir.

Senator Knox. We have the power to charter that road, to wind it up under the New York charter, and to put it in operation under a national charter.

Secretary Taft. Yes; your charter would be, of course, just as efficient as the New York charter for the purposes that I have mentioned.

Senator Knox. I agree with you that you have got to preserve it as a separate legal entity for convenience.

Secretary TAFT. Yes, sir; I observe that on the floor of the Senate (if I may mention that here) it was suggested that the management ought to be merged; and so far as we can merge it, it is merged. The directors are the members of the Canal Commission; the president of the railroad company is the Chairman of the Commission, and they both are under my direction by the order of the President; so that we try to make the management as completely one as possible. And yet, as I have already said, it is sometimes quite convenient to act in the name of the company rather than in the name of the Canal Commission; and we thus accomplish things that are legal and proper, the authority of which might, perhaps, be questioned if we acted as a commission.

Senator KITTREDGE. Mr. Secretary, could you, without much trouble, ascertain and inform us as to the Government's rights in regard to the bonds?

Secretary Tarr. Oh, yes, sir; I would be glad to send you a form of the bond. There is one-I do not think it is exactly in the form of a bond, but it is a convention with the Colombian Government. At any rate, I will send you all the evidences of the indebtedness, so that you can have that.

Senator KITTREDGE. It seems to me that it would be sound business policy to take up those bonds if it is within our power to do it.

Secretary Taft. There is a provision by which the bonds will pay themselves in the course of eight or ten years. There is a sinking-fund provision.

Senator Knox. What interest are you paying?
Secretary Tatt. Four and a half per cent.
Senator Kyox. On all of the bonds?

Secretary Taft. No, sir; there are some 6 per cent bonds. The original ones were 6 per

cent bonds. Senator MORGAN. There is no power under them, I suppose, to participate in the conduct of the affairs of the railroad?

Secretary TAFT. No, sir. Senator MORGAN. Then, that is a separate question. I do not see why Congress can not make a provision to put those bonds on just as good a footing as they have to-day in respect of the security afforded for their payment.

Secretary Taft. Well, there is this consideration, Senator, that I think in a court of equity the bondholder may complain of injury to his collateral; and therefore, while the ownership of all the shares of stock gives us the right to use this property as we choose, it is subject to the limitation that we shall not injure the security.

Senator MORGAN. Yes, but it could hardly be called an injury of the security to substitute for the property the credit of the United States Government.

Secretary Taft. Still, I am not so sure that a court of equity would not say that a man has the right to insist on the thing in his hand rather than to accept even Government bonds.

Senator ANKENY. Pardon me, Mr. Secretary, but it makes no difference, as far as the revenue is concerned, whether it belongs to the road or to the Government?

Secretary Taft. Not a bit; because under the authority of the Attorney-General we have the right, in pursuance of the general policy and purposes of the Spooner Act, for the purpose of bettering the equipment of the railroad, to lend to the railroad money to be used in the expenditure on the equipment. Out of the eleven millions which have already been appropriated this year, it is quite probable that we may have to advance to the company, in order to meet its indebtedness for new equipment, some half a million or a million dollars. Indeed, that policy was pursued with reference to the purchase of two steamships. The Canal Commission bought the steamships and then leased them the company at 4 per cent interest on the money paid, with 4 per cent for wear and tear.

Senator ANKENY. Mr. Secretary, if it is in order, is it not necessary to increase the facilities of that road as soon as possible, as a business proposition, by means of double tracks, etc.?

Secretary Taft. It is now to be double tracked.
Senator ANKENY. That will relieve the situation.

Secretary TAFT. When it is double tracked, there will be no difficulty; and there is not now on the Isthmus a glat, except that growing out of the action of the Pacific Mail Steamship Company. If the committee has time, I will be very glad to state the trouble and the problem that we have in that regard.

The CHAIRMAN. I think we would be very glad to have you state it, Mr. Secretary, if you have time to do so.

Secretary Ï AFT. Yes, sir. The Pacific Mail Steamship Company, when we became the owners-by “we” I mean the Government-had a contract with the Panama Railroad Company by which all goods from New York over the Panama Steamship Line and over the railroad for San Francisco or any point north of Panama were to be billed exclusively by through bills over the Pacitic Mail Steamship Company's steamers.

Senator MORGAN. That is the old arrangement that has been in operation for twenty-five or thirty years?

Secretary TAFT. Yes, sir; it was not continuously in operation; there was a break.

Senator MORGAN. Yes; there was a break.
Secretary Taft. And then it was resumed again.
Senator MORGAN. Yes,

Secretary TAFT. It was of such a character that I advised the President that I did not think the Government ought to enter into that arrangement; and the contract provided (anticipating, apparently, the sale to the Government) that in case the road was sold, or in case the Government of the United States became interested in the railroad so as to become a majority stockholder, the right was reserved to the railroad company to terminate that contract upon six months' notice I directed the president and the directors of the railroad company to terminate that contract by notice in January of last year; and by the 12th of July the contract was terminated by its own provisions.

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Now, the Pacific Mail Steamship Company is running even worse steamers than it ran before between Panama and San Francisco. The ports where it seems to make its money are the ports in Central America and Mexico where it has agents who are really the factors for the coffee plantations and for the other products that are raised in those countries. These agents act as bankers for the planters and advance them money, and in that way the company retains control of that business-charging. I have no personal knowledge about this,

I but if they pursue the policy that obtains in the Philippines they get most of the profit out of the crop.

That is the business that is profitable to the steamship company, so when they get through business to San Francisco they are very slow and leisurely about taking it up. As a result, these steamers, of very insufficient tonnage, have left (as Mr. Stevens told me yesterday or day before) on the last four or five sailings with only a third of a cargo or with only half a cargo, leaving much more than a full cargo on the wharf at La Boca, where the steamers dock. We are, therefore, getting a glut of business as a result of the inactivity and the lack of desire on the part of the Pacitic Mail Steamship Company to do that business, and the question which is presenting itself to us with a good deal of force is, What shall we do about it? Shall we put on Government steamers on that side of the Isthmus and establish a line there? Or, if we attempt to get in some other line which has not the good will and the situation, so to speak, that the Pacific Mail has with respect to its Central American and Mexican business, can we induce any company on that side to do the work?

I am not sure that what I am about to say will meet the views of some of my advisers in the War Department; but we have some transports that we might possibly put into that business if we were author ized by Congress to do it; and if we did it might bave some effect on the transcontinental rates. The Pacific Mail Steamship Company is owned by the Southern Pacific Railway Company.

Senator MORGAN. Allow me to make this inquiry right there: Does the Pacific Mail Steamship Company claim the rights of the coastwise trade between Panama and San Francisco, for instance?

Secretary Tarr. Oh, yes, sir; they are claiming those rights.
Senator MORGAN. They claim those rights?

Secretary TAFT. Oh, they have those rights; yes, sir; so that no company could go into that business, under your coastwise laws, without having an American registry.

Senator MORGAN. If we were to modify the coastwise laws with respect to that particular line of transportation, would it not be probable that other companies would come in and take it up?

Secretary TAFT. To-morrow.
Senator MORGAN. Yes; so that is a solution of it?

Secretary TAFT. Well, of course, I am simply here to discuss the situation under the existing law.

Senator HOPKINS. Any modification of the coastwise laws would be referred to Brother Frye, of Maine.

Senator MORGAN. Well, Senator Frye will be like the balance of uswilling to give up some of his prejudices in favor of the interests of the Government.

Secretary Tart. I ought to say that the Chilean line from Panama south, of which complaint was made before the change, has cooperated

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