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This was due to, first, the general climatic influences on the men: second, the more or less panicky feeling generated by the deaths of Messrs. Johnson and West.

The dissatisfaction among the men was of two general kinds, one class being those who openly expressed dissatisfaction, or who might be called the "kickers." who had only recently come to the Isthmus, and who were, in reality, unfit men who had been employed in response to general requisitions, having been engaged through the clerks in the Washington office, a large number of them having actually been employed by the lady stenographers, who were unfamiliar with expert labor.

It is a fundamental principle that men who are unemployed and apply for positions here are undesirable. The kind of men needed are those already engaged in the satisfactory performance of their duties, to whom it is necessary to pay an increased rate of salary in order to induce them to give up a position in which they are satisfactorily employed to come to the Isthmus and put up with the inconveniences that are necessarily attached to construction work in a foreign tropical country.

The dissatisfaction among the men, however, that gave the most anxiety was of the silent, unexpressed nature, which existed among our loyal and better class of employees. In time this would have resulted in their gradually leaving the Isthmus, as they were offered positions in the States, or in their taking their leaves of absence in the normal way and not returning, provided they could find any other means of earning a living. Above all was the disadvantage to the work where men were compelled to remain here in order to earn a living, with a silent feeling of discouragement.

I think it can be said, without egotism, that my return to the Isthmus, particularly being accompanied by Mrs. Wallace, had an immediate and material effect in restoring confidence. This, however, was based on the evident hope that under the changed order of things a new and broader policy would be adopted and immediate steps taken to more liberally compensate the men and properly organize the work, which was impossible under the old conditions.

This I have been continuously employed upon since my returu. The chief engineer has made every effort to perfect a new and permanent organization since his return, as fast as the details could be worked out, and the outlook is becoming more and more favorable.

Material is now coming in and the men are becoming better housed. Provision for amusement and entertainment will be taken up later.

Governor Magoon was enthusiastically received by the Panamanians, as well as by the American employees and people inhabiting the Zone.

His friendly and genial disposition, his broad views, and the hard, sterling common sense which he exercises in the consideration of all questions submitted to him, coupled with the hearty cooperation which he has extended to me at all times and in all things, have been a great encouragement.

The greatest handicap at this time is the lack of several high-class loyal assistants. All the men here are loyal and perfectly competent in the handling of their several divisions or bureaus as the work now exists, but in view of the large amount of organization and expansive work ahead, several high-salaried men are needed who should be personally selected by the chief engineer.

Since my original apopintment as chief engineer this matter has been given constant thought and a great many men considered for the more important positions that have not yet been filled, particularly that of assistant chief engineer. Refusal after refusal has been met with, although as high as $15,000 per annum has been offered in a tentative way. This position is a most difficult one to fill-probably much more so than it would be to select a successor to the chief engineer, as his assistant must necessarily have ability fully equal to that of his superior and be perfectly competent to step into his place should ill health, inclination, or any other reason cause the chief engineer to leave the service.

It is absolutely necessary that a man of this character should be secured without further delay, and that he should be personally selected by and be a man in whom the chief engineer has perfect confidence.

It will also be necessary to employ other high-class men in the immediate future. It was the intention of the chief engineer to secure these men on his recent return to the States, after personal conferences and full investigation of their records, but the important matters connected with the reorganization of the Commission and the Panama Railroad Company prevented: and on account of the demoralization which had occurred during my absence, due to the deaths

of Messrs. Johnson and West and the illness of General Davis and the general their records, but the important matters connected with the reorganization of of the Commission, it appeared highly desirable for me to return to Panama at once and allow the question of personnel to be taken up at a later date.

Prior to being called to the States I had addressed a letter to Admiral Walker, a copy of which is hereto attached, applying for leave of absence, during which period I expected to have an opportunity to canvass and interview the men required for the higher positions. Shortly after this letter was written a cable was received from the Secretary of War outlining the reorganization of the Commission, and the letter was never replied to.

Since my return I have been most vigorously employed in arranging for the reorganization of the work and in stiffening up the weak points.

In the meantime cables and letters have been received from the States in regard to matters which vitally concern my personal interests, which could not be brought to a consummation before leaving the States.

There are also several matters which it is desirable to discuss with you before your departure for the Philippines, which I do not think it wise to hold until your return, and which can not satisfactorily be handled either by cable or by letter.

While they might be considered largely of a personal nature, any action taken for my personal interest would affect, to a greater or less extent, the work here.

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"Important complicated business matters which can not be arranged by correspondence, and which may affect my relations as chief engineer of Commission, necessitate immediate return to the United States to confer with you and others. An order from you to return for official consultation will prevent apprehension on the part of employees. Suggest Shonts remain until my arrival. Please answer.

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"WALLACE."

'Secretary of War and Shonts, in accordance with your request and without knowledge of circumstances that justify, approve your return for consultation with them at Washington.

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The suggested order to return to the States for a conference with you prior to your leaving for the Philippines was to cause a better effect on the men here than if they understood I had returned of my own volition, as it would be natural to suppose that you might desire a personal conference with me in relation to the work here before your departure for a considerable absence from the country.

My intention was to make a hurried trip to the States, in order to return here in time to be present at the meeting of the Commission on the 2d of July.

However, it is possible to make such progress in my reorganization work that I believe I can finish everything up and sail for the States on the steamer Finance, which will leave here Monday, June 12; and as I have been continuously at work for the Commission without any vacation (having taken practically none when in the States), I respectfuly request that I be granted at least six weeks' leave of absence, dating from the completion of the conference with yourself and the chairman of the Commission, or after I have finished such business as I may be called upon to attend to in Washington or New York for the Commission or the Panama Railroad.

In this connection I desire to say that one of the basic conditions made with Admiral Walker in May, 1904, when I considered the proposition to come to Panama, was that I should have at least two months' leave of absence during each year.

The Admiral was disinclined to accept this proposition, but finally stated to me that I could have six weeks in connection with some of my business trips to Washington, and that the six weeks would date from my leaving Washington until again reporting there for duty.

I know of no time during the next year when the work will be in better condition to permit of my absence. It is thoroughly organized, everything possible

that can be foreseen provided for, and a feeling of loyalty and enthusiasm how permeates the entire personnel.

On landing in New York, on the 19th or 20th of June, I would like to spend one or two days there on matters connected with the Panama Railroad before I proceed to Washington, when I hope you will be able to give me a personal interview.

Hoping that this will meet with your approval, I remain,
Very respectfully,

JOHN F. WALLACE, Chief Engineer.

EXHIBIT 20.

ISTHMIAN CANAL AFFAIRS. OFFICE OF ADMINISTRATION,

Washington, D. C'.. April 13, 1906.

SIR: I have the honor to attach hereto a statement showing the number of employees on the Isthmus during the months from January to October, 1905, and information concerning separations from the service during a part of this period, requested in your memorandum of the 11th instant.

Respectfully,

The SECRETARY OF WAR.

JOSEPH BUCKLIN BISHOP, Secretary.

Statement of number of employees of the Isthmian Canal Commission located on the Isthmus of Panama during the months from January, 1905, to October, 1905.

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Statement of Panama Railroad Company as to passengers carried on its steamers from Colon to New York from June 1 to September 30, 1905.

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Of the 274 steerage passengers returned during this period possibly one-half were returning canal employees who were not given the $20 rate.

The above number (571) will also include employees returning to the United States on leave of absence.

Statement of the total separations from the Isthmian service of gold employees. from April 1 to September 30, inclusive, as shown by the records of the Washington office.

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Panama, April 27.-All the contract Jamaicans working at the aqueduct struck to-day, alleging insufficient food as the cause. Six policemen, who were summoned by Engineer Barrill to compel the men to work, were badly beaten. and Barrill himself was stoned. Armed policemen reestablished order and prevented a riot.

[New York Tribune, May 5, 1905.]

Panama, May 4.-The steamer leaving Colon for New York to-day had on board a large number of canal employees, over 50 of them having resigned.

[New York Herald, May 6, 1905.]

Colon, Friday. The steamship Segurance sailed from this port yesterday for New York with a large number of passengers, over 30 late employees of the Isthmian Canal Commission going home in consequence of discontent with conditions on the Isthmus. The rainy season has set in, hindering the work of bush cutters back of the town, which will remain swampy till January unless filled up before that time.

[New York Herald, May 7, 1905.]

Washington-Mr. Shonts, chairman, having returned to Washington, a meeting of the executive committee of the Isthmian Canal Commission was held to-day. Open expressions of discontent and grumbling on the part of the employees in the Canal Zone and frequent resignations have impressed the committee with the belief that something must be done to make the service more attractive to young Americans.

The most important decision to-day was that there should be a rearrangement of salaries, the particular feature of which will be liberal allowances in the lower grades. Provision will be made for leaves of absence on a more generous scale than in the past, and the social life of the American colony will be developed. Sports will be encouraged, grounds provided for baseball, tennis, and open-air games; the organization of clubs will be provided for and accommodations for them supplied by the Commission, and, altogether, it is hoped to check the growing feeling of discontent.

[New York Tribune, May 7, 1905.]

Washington, May 6.—In an article headed "Better canal service-Commission plans to make Isthmus work more attractive," the following appears: "The Panama Canal Commission has determined to do everything in its power to make service in the Canal Zone attractive, and in that way hopes to dissipate the general dissatisfaction prevalent among Federal employees in Panama. Ball grounds, tennis courts, bowling alleys, and other forms of innocent amusement will probably be provided. The policy of promoting those who,

by efficient service in the Zone, deserve recognition, will be strictly adhered to wherever possible, in contrast to the policy of calling on the Civil Service Commission in Washington for clerks who have qualified for the higher classes of service or securing the transfer of such clerks from the Executive Departments in Washington.

"The adoption of this policy grows out of an extended report recently made by General Davis, in which he outlines the general dissatisfaction among employees in the Zone, the unfortunate circumstances in which many of them were placed, and the general misunderstanding of conditions under which many of them accepted employment.

"From this report it appears that a considerable number of employees came to Panama with the understanding that they would receive generous salaries and rapid promotion, enjoy exceptionally comfortable quarters, and labor under particularly rosy conditions. The conditions are generally the reverse of what they say they were led to expect. General Davis dwells at considerable length upon the impossibility of housing the employees, the utter impracticability of men bringing their wives and families to the Zone under existing conditions, the impossibility of their realizing their expectations with regard to salaries and promotions, and the numerous temptations which beset them, chiefly in the way of gambling dens, lotteries, etc."

[New York Tribune, May 10, 1905.]

Colon, May 9.-Fifty Inagua Island (Bahamas) contract laborers, who were brought here on the American steamer Advance last Friday and were detailed to work on the Colon reservoir, 2 miles back of Monkey Hill station, obstinately refuse to work, saying that they have to work in mud swamps and that their huts are not fit to live in and that their food is unsatisfactory. The islanders marched in a body yesterday to the British consulate and laid complaints before the vice-consul, who is looking into their alleged grievances. The canal authorities are finding it difficult to obtain labor for that locality.

[New York Tribune, May 12, 1905.]

It appears that the yellow-fever scare on the Isthmus of Panama has not abated and that conditions are serious there. This appeared yesterday in the return by the Panama Line steamship Seguranca of 30 young men who went down to work for the Canal Commission. All are coming home because they were alarmed over the fever scare. Said one of the men :

"There is yellow fever there, and it is likely to spread. Of course I do not say that anything which could be done is neglected by the officials and that sanitation is not being looked after. At the same time we are of the opinion that it will be a good long time before conditions down there, in regard to health, will be brought up to the same standard as they were when the Americans turned over Cuba."

[New York Times, May 15, 1905.]

According to the opinion expressed yesterday by the commission appointed by the Japanese Government to investigate labor conditions in Panama, the germs of the Canal Zone were likened to the death-dealing qualities of the Russian bullets.

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"The consul will make a report of our investigation to the office of foreign affairs at Tokyo, but just what recommendations the report will name I can not say just at this time," said Mr. Richardson (secretary of the consulate at San Francisco)," but my own private opinion would be that it would not be wise to send a big number of Japanese into the Isthmus at this time, and I think it would be equally unwise for the Panama Commission to accept them, inasmuch as it seems to me, with the prevailing conditions in the Canal Zone, the men would become very much discontented. The sanitary conditions are still very bad.

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There were several cases of yellow fever while we were there, and the mosquitos are woefully obnoxious. The labor conditions appear bad, the principal laborer being the native negro, and it would seem folly at this time to import labor that was not accustomed to climatic conditions under the present bad sanitation arrangements."

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