Mr. WALLACE. No; he was particularly desirous that I should get a deputy chief engineer that would be able to handle that work in case anything should happen to me.

Senator MORGAN. He insisted on higher prices?

Mr. WALLACE. Well, I do not remember that the term "highpriced" was used, but it was high-class men that he was urging, and the securing of what we call a duplicate organization. I already, at that time, had Mr. Dauchy, who had been chief engineer of the Rock Island system, who I thought was a very capable man, and I had employed Mr. Maltby, who was a very capable man, and I had been hunting all over the United States for a first-class man to fill a position

next to me.

I did not believe it was necessary to explain to Mr. Cromwell what my ideas were, or what I had been doing, because I did not consider it any of his business. I was actually working along the lines that he had suggested; but the impression that he made on me was that he thought I was not competent to think of doing anything in this line unless he suggested it; and that it was his idea that I had neglected that part of the work, and that I should be punched up about it, and that that was what he was trying to do.

Senator MORGAN. Did he undertake to advise you about any other matter connected with your business?

Mr. WALLACE. That thing we discussed at some length, and the conversation was quite long. I do not recollect the details of it now. Senator MORGAN. But it was a general admonition or advice to you in regard to how you should conduct your business?

Mr. WALLACE. It was principally in the line of getting more men in the higher positions.

Senator MORGAN. Did he say anything about having been instrumental in having your appointment as Commissioner made?

Mr. WALLACE. I do not remember whether he did at that time or not.

Senator MORGAN. Did he at any time?

Mr. WALLACE. Well, my impression is that he did, but I could

not

Senator MORGAN. He claimed the credit to himslf of having had you appointed?

Mr. WALLACE. My impression is that he did, but I do not remember exactly.

Senator MORGAN. Was that offensive to you?

Mr. WALLACE. Yes; in a way it was; but those were the things that I generally took with a smile, that part of it. Mr. Cromwell ard I, from the very first, to use a slang expression, were always rather disposed to "jolly" each other.

Senator MORGAN. You have looked very carefully over his testimony as he gave it here?

Mr. WALLACE. I have read it; yes.

Senator MORGAN. You have read and studied, I suppose, the account that he gives of what transpired at the time that Mr. Taft came up from Washington to hear your statement as to your purpose of resigning as chief engineer and also as Commissioner; you have seen all of his statements?

Mr. WALLACE. Yes, sir.

Senator MORGAN. Have you any change to make in the statement that you made before this committee the first time in regard to those matters?

Mr. WALLACE. I have no change to make in the statements that I made before this committee originally, and I want to say right now that while Mr. Cromwell may have misunderstood my language, I tried my very best to impress upon him that that interview should be a personal and private interview; and he even went to the extent of telling me that if I thought the Manhattan Hotel was not private enough he would arrange for it at his own house and let the Secretary and ine be there alone. Mr. Cromwell, to my mind, thoroughly understood that he was not to be at that interview, and he started to leave the room as my son did, who accompanied me into the room, and to leave the Secretary and me there alone, when the Secretary called him back and told him that he wanted him to remain through the interview, and Mr. Cromwell sat down.

Senator MORGAN. Do you know of any occasion or interest for the secretary to have a witness present at that conversation with you? Mr. WALLACE. I know of no reason why.

Senator MORGAN. You had no suspicion that he desired to have some one to verify what you said?

Mr. WALLACE. No, sir; not until that moment.

Senator MORGAN. And you regarded Mr. Cromwell, then, as an intruder?

Mr. WALLACE. I most certainly did

Senator MORGAN. I think I will not ask any more questions.

Senator KITTREDGE. There is one more question that I wish to ask regarding the type of canal: As I understand your statement regarding the sea-level proposition, Mr. Wallace, there are connected with it no unusual, untried, or doubtful problems?

Mr. WALLACE. There are none whatever, Mr. Senator. It is simply a plain case of digging a ditch of large dimensions. While that ditch is larger than any ditch we have ever dug before in this world, there are no elements of uncertainty about it except those that go with a job a little larger than what we have done before. The same principles are involved and the same methods can be used.

The amount of excavation to be made there is so great that it permits a great many economies that would not be possible in a smaller piece of work. For instance, a cent a yard on that work will pay for all the steam shovels you have got to buy for it. Six or seven cents a yard will pay for all your engines and cars and almost the entire plant that you have to buy new. That is, the fact that the work is so large and that it will extend over about the life of the machinery that is put into it makes it a very economical proposition from the standpoint of the installation of a plant for it.

The CHAIRMAN. I think, in your previous testimony, you stated that your belief was that all the work, practically, should be done at the Isthmus, and not in Washington. Am I correct in that?

Mr. WALLACE. Yes, sir.

The CHAIRMAN. Do you think that there should be a very small force here, or a large force here?

Mr. WALLACE. I do not believe that you need any more force in Washington than may be necessary to keep such records as the Presi

dent and his Cabinet and Congress may desire for their record, and the Treasury Department.

The CHAIRMAN. You think, perhaps, then, that the force that is here in the city now should be transferred to the Isthmus? Is that your idea?

Mr. WALLACE. All of it that is necessary for the work. In other words, that the organization down there should be as complete and as separate from the United States as your government in the Philippines-more so, if possible. In other words, the nearer you can handle that work the way a large contractor would handle it the more efficient the results will be. What we do need is such supervision over that construction as that you may get a canal there so wide and so deep located along a certain line as soon as possible and have the work done as well as possible.

The CHAIRMAN. It would be necessary for that supervision to be there on the Isthmus and not here?

Mr. WALLACE. Yes; that supervision should be on the Isthmus, and should not be in Washington.

Senator KITTREDGE. Suppose that Congress should decide to construct a sea-level canal from the Atlantic to Obispo, and from the Pacific to Miraflores, with a width of 300 feet, would its construction materially extend the time of doing the work?

Mr. WALLACE. No, sir; it would increase the cost, but it would not extend the time, because that additional work would not last longer than it would take to cut through the continental divide. It could all be done inside of the period that you are taking out your central excavation.

The CHAIRMAN. I believe there are no other Senators that desire to ask you any questions, Mr. Wallace.

Mr. WALLACE. There are one or two suggestions that I would like to volunteer, if you will permit me to do so.

The CHAIRMAN. We shall be very glad to hear them, Mr. Wallace. Mr. WALLACE. One is with regard to the rate on the Panama Railroad.

In the testimony of one of the witnesses-I think the president of the Panama Railroad-he said that the cost of handling freight across the Isthmus was $3.10 a ton. That is 47 to 50 miles, and that is over 6 cents a ton a mile. I want to say to you gentlemen that that is the strongest argument that could be made before you for the proper equipment of the Panama Railroad with modern appliances. One-tenth of that amount-that is, six-tenths of a cent a ton a mile-represents the gross revenue of a great many of the railroads in the United States, out of which they have to pay their maintenance, their fixed charges, and everything else; and the fact that it costs $3.10, or 6 cents a ton a mile, to handle freight across the Isthmus simply shows that that railroad is from twenty-five to forty years behind the times.

The engines that were there when I was there, when they were double headed, only hauled 171 tons over that divide at Culebra, a grade of about 14 per cent. The new engines which we bought about that time-24 of them-were drawn up on specifications which should enable two of them to handle 1,000 tons over that hill. That thousand tons could be handled for the same cost, as far as transportation is concerned, as the 171 tons could be before, except that they would take a little additional coal; but they would not take any more supervision,

and there would be no other additional expense connected with it. In other words, if you make this 171 tons 200 tons, the expense of transportation on the Isthmus up to the time those new engines were put into service would be just about one-fifth of what it would be if it was equipped with modern cars and modern engines.

Senator TALIAFERRO. You mean five times as much, do you not? Mr. WALLACE. Yes, sir. If you provide proper facilities for loading and the proper wharves so that you can handle that business properly you can make money at $2 a ton flat. It is true that when I say $2 a ton flat, without classification, I do not mean that the freight that passes through the canal will not be classified, because all through bills of freight will be classified in accordance with the custom of the steamship line or the route over which it sails. But what I mean to say is that you get as near as you can with a railroad a condition which will be similar to what you will get when the canal is built.

When the canal is built you will charge on the tonnage of the vessels; that is, it will be a flat rate as far as the stuff in any one vessel is concerned. The nearer the vessel is full the lower the rate will be per ton for the stuff that is actually carried in the vessel, as your canal rate will be either the Danube measurement or the English, or, say, net registered tonnage, or something like that; but it will have the effect of a flat rate. Any flat rate you put on that business over the railroad the lower the better-will have a proportionate effect on the rates through this canal, although those through rates may in themselves be classified rates. But so far as that part of the transit across the Isthmus is concerned you are approaching the same condition of affairs, in a measure, that you will have when you get your canal completed. That is simply a point I wanted to clear up.

Just before I go, there is another thing that I would like to say to you, and that is this: That I do not think that you can overappreciate the importance of the effect of protecting our future trade by heading off the possible development of that route by way of Tehuantepec. It goes without saying that it is much easier to hold a line of traffic than it is to get it away from somebody else after they get it once. I do not think that there are very many people that appreciate what the Tehuantepec route means if they get it established once. A low rate now at Panama and the demonstration to the shipping world that you can handle their stuff there, and handle it promptly and satisfactorily, is going to keep the business that you have got and is going to increase it very rapidly.

Another point: Of course it goes without saying that some time will elapse after the canal is completed before you will get enough revenue out of the tolls to pay your interest and to pay your expense of maintenance and operation. But the increase in that business will be gradual year by year, and every year you can advance the consummation of that condition you lose that much less money. If you commence to carry that business there now, and develop your railroad to its limit in the first place, and make the rate low, and it takes ten years to build the canal, the time when the canal will pay for itself will be just ten years nearer to you. In other words, you can afford to operate the Panama Railroad at a loss of one or two or three or even five hundred thousand or a million dollars a year in order to build up that business, rather than to wait until the canal is done and then attempt to do it by the canal itself, after you have absolutely ruined that route

as a transportation line, because then your loss may be five or six or seven or eight or ten millions of dollars a year if you have not got the business for your canal.

The CHAIRMAN. Your idea is to hold on to the present business and get what you can?

Mr. WALLACE; Yes, sir; and to get all that you can, just the same as if I was operating it for a private corporation.

The distance from New York to Hongkong by way of the Tehauntepec Railway is 1,351 miles nearer than by the way of Panama. Freights are worth on an average of $1 a ton for a thousand miles. That means that the Tehauntepec route would be $1.35 plus the rate over the railroad which, say, might be $2 or $3 a ton-granting it is about $3 now-which would make $4.35 a ton. Any less sum than that could be charged by the Tehauntepec Railroad, and make money out of it, and also save about five days in time.

The distance from New York to San Francisco by that line is about 1,200 miles shorter than by way of Panama. There you have $1.20, plus the toll across the Isthmus of $3, or whatever it will be, and the saving in time of about four or five days. That holds good all through here I mean in varying proportions but they have an advantage. That is partly, of course, compensated by the fact that they have 175 miles to haul that stuff, and it will cost them the same to handle their stuff on the wharves that it does at Panama and Colon, and it will cost them about three times as much to handle it over the railroad. And there is a reverse advantage to us in that fact, which we can overcome by a low flat charge at Panama now, if we fix it up, and we can keep that business for a less loss than we can ever get it back again.

I have some data here about these rates that I would be perfectly willing to leave for your record.

The CHAIRMAN. We should be glad to have them.

Mr. WALLACE. Also I have a short paper here that shows the various ways of working out canal dues, etc., and some other notes that I had as a memorandum. I shall leave them with you, as they express some of the things that I have said in better language than I have expressed them in my verbal examination.

The CHAIRMAN. We shall be glad to have those put in the record. We appreciate your coming, Mr. Wallace, and will excuse you now so that you may catch your train if you desire.

(The committee thereupon adjourned until to-morrow, March 21, 1906, at 2.30 o'clock p. m.)

(The following papers, submitted by Mr. Wallace, are printed by order of the committee.)

THE GATUN DAM.

There is no reason to believe that the weight of the Gatun dam will compress the permeable strata which exists in the Chagres Valley in the gorge 250 feet deep. While mud and ordinary clay compress under weight the witness knows no case where a permeable strata of freely water-bearing material, fully saturated, has ever been cut off by a weight imposed on a surface 250 feet above it, as is the situation at Gatun.

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