so great had been the objection on the part of the Panamanians to the order of June 24 that General Davis did not begin its execution, although it was proclaimed, but postponed it until November 18. (See letter from General Davis to Admiral Walker, marked Exhibit 4.) At that time we were on our way to the Isthmus, and my understanding is that the order was never enforced, and no duties were ever collected under it.

In order to secure as much harmony as possible, and to give the Panamanians to understand that we wished as full a discussion as possible, with the concurrence of the President, I invited Minister Obaldia, Mr. Cromwell, and Mr. Farnham, in Mr. Cromwell's employ, to accompany me on the trip in order that they might assist at the conference in Panama on the Panamanian side. I also took with me Admiral Walker, chairman of the Commission, and Judge Magoon, its general counsel. I have here, and append as Exhibit No. 5, a stenographic report of the first conference held between President Amador and myself. By the request of Doctor Amador, the conferences were held in executive session. After the first meeting, the course was this: Mr. Cromwell, representing the Panamanian authorities, brought to me their complaints, and the negotiations were really conducted between Mr. Cromwell and me. Mr. Cromwell would return to consult President Amador and his cabinet and I would hold conferences with Admiral Walker, General Davis, Judge Magoon, and Mr. Wallace, the chief engineer, in whose house I was staying.

The Executive order or modus vivendi of December 3, 1904; the reasons for its necessity and adoption.

The negotiations involved many questions, but finally resulted in the order of December 3, which met the views of my colleagues with the exception, possibly, that General Davis was not inclined to yield as much as I did yield in respect to the construction of a road from the Zone into Panama, and was rather inclined to question the wisdom of adopting the Panamanian stamp rather than the stamp of the United States. The stenographic account of our first conference, already appended, shows quite clearly the attitude which I felt under the instructions of the President it was proper for me to take, namely, that I was there not to construe the treaty, not to assert the full powers of the United States, but to make a modus vivendi which should bind neither party to any permanent construction of the treaty. I did not intend to give up any right which the Government had, and might in the future wish to exercise, but I was quite willing to make any concessions not affecting those rights and not interfering with the power and convenience of the Government in constructing the canal, which would soothe the amour propre of the Panamanian people or of the Government, and which should convince them that we were not in the midst of their country for the purpose of excluding them from a prosperous business. Article III of the treaty provides as follows:

The Republic of Panama grants to the United States all the rights, power, and authority within the zone mentioned and described in Article IF of this agreement and within the limits of all auxiliary lands and waters mentioned and described in said Article II which the United States would possess and exercise if it were the sovereign of the territory within which said lands and waters are located, to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power, or authority.

It is peculiar in not conferring sovereignty directly upon the United States, but in giving to the United States the powers which it would have if it were sovereign. This gives rise to the obvious implication that a mere titular sovereignty is reserved in the Panamanian Government. Now, I agree that to the Anglo-Saxon mind a titular sovereignty is like what Governor Allen, of Ohio, once characterized as a "barren ideality," but to the Spanish or Latin mind poetic and sentimental, enjoying the intellectual refinements, and dwelling much on names and forms it is by no means unimportant. Therefore, when the question of the form of stamp was to be determined, I had not the slightest hesitation in yielding to the view that we should adopt the system which for a time General Davis had himself adopted before he got United States stamps, of merely purchasing the Panamanian stamps and crossing them with the words Canal Zone." I do not know that it is necessary for me to go through the various provisions of the order of December 3. I have discussed them at length in my letter transmitting the annual report of the Commission for 1904, and it is printed on pages 2392 to 2410 of this record.

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The order, in effect, required that all importations into the Isthmus of merchandise, except those admitted free of duty for the Government of the United States or its employees under the treaty, should be entered at the Panamanian ports instead of at the United States. ports in order that the Panamanians might collect duty on them and thus maintain their revenues. This, however, was on condition that they should reduce their duties from 15 per cent ad valorem to 10 per cent ad valorem. I deemed it of great importance that the Panama Republic should be self-supporting. Free trade between the Zone and the Republic was declared. The existence of the terminal ports of the canal as ports of the United States for clearing and entering by foreign vessels was recognized. Without waiting to determine whether the Government of Panama would fail in its duty to enforce the sanitary ordinances in Panama and Colon prescribed by the United States as was probable, the Republic turned over to the United States authorities immediate right to enforce the same. The postal rate from Panama to the United States and from the United States to Panama was made 2 cents, the stamp in the Zone being the Panamanian stamp crossed with the words "Canal Zone."

In order to induce the Panamanian Government thus to reduce the rate of postage, it was agreed that these stamps should be purchased at 40 per cent of their face value by the Zone Government from the Panamanian Government. The remainder, that is 60 per cent of the face value of the stamps, was retained by the Zone Government for the purpose of paying its own postal expenses. Another part of the order secured the carrying out of the currency agreement made between the Secretary of War and the fiscal commissioners of Panama in Washington, June 20, 1904. Detailed reference will be made to this agreement at another place.

The Panamanian merchants felt great alarm lest the United States might use the clause of the Hay-Varilla treaty which permits the United States to import free of duty into the Isthmus all machinery, equipment, material, and supplies needed by it or its employees in the construction of the canal to break up their normal business in native supplies in the Zone. After a conference with General Davis

and Mr. Wallace I became convinced that there was no present prooability of a scarcity of food for the tropical laborers, save under exceptional circumstances, and that it would be much less burdensome to the Government to have this class of laborers furnish themselves with food from the local markets. As part of the arrangements made when I was on the Isthmus, therefore, on January 7th I issued an order to carry out Section XIII of the treaty. The order provides for the free importation of many classes of articles and merchandise, including everything which is necessary and convenient for the officers, employees, workmen, and laborers in the service and in the employ of the United States, and for their families. The order provided how and on what certificate these goods should be admitted, and classified what they should be, and contained the following clause:

This order contemplates the exclusion from the benefits of the commissaries established and maintained by the Commission of all employees and workmen who are natives of tropical countries wherein prevail climatic conditions similar to those prevailing on the Isthmus of Panama, and who therefore may be presumed to be able to secure the articles of food, clothing, household goods and furnishings, of the kind and character to which they are accustomed, from the merchants of Panama, Colon, and the towns of the Canal Zone, and whose ordinary needs may be supplied without recourse to the Government commissaries. Should it develop hereafter that said merchants charge prices in excess of legitimate profit, or practice other extortion, the United States, for the protection and assistance of all its employees, whether from the Tropical or Temperate Zone, will supply its commissaries with such staple articles as are required and desired by the inhabitants of tropical countries, and permit all its employees and workmen and those of its contractors to avail themselves of the benefits and privileges afforded by said Government commissaries.

The operation of this order has never given rise to any difficulty, except as you have heard from Mr. Shonts and Governor Magoon. At one time in the Zone, after a sudden influx of laborers, in June and July, 1905, the merchants of the Zone were apparently quite short of provisions, or else they attempted to make a corner upon them. The commissaries and boarding houses were then opened to the native laborers. This opening of the commissaries was not in violation of the order, but was in express compliance with its proviso. The commissaries and boarding houses for native laborers have been open ever since, under the auspices of the Commission or the Panama Railroad, but the native laborers do not patronize them. They prefer to supply themselves from the native merchants in the Zone, and the Panamanian merchants. This seems to show the wisdom of the distinction between the American employees and the native laborers in the matter of importation of food supplies.

Regarding the question of the order of Decemoer 3, 1 invite attention to section 12, which specifically provides that the making of the order, or a compliance with its conditions by the Panamanian authorities, could not operate as a restrictive or enlarging construction of the treaty, making the arrangement purely a modus vivendi. Attention has been called to the provisions of the order which enable the Panamanian residents, without obstruction by the Zone authorities, to vote at the elections held in the Panamanian Republic. It is not understood what objection there could be made to this provision. There is no requirement of law that the residents of the Zone should be citizens of the United States, or should part with their privileges as citizens of Panama, if they choose to exercise those privileges and the Republic of Panama sees fit to allow them to do so.

I omitted to say that before the order was signed I cabled the substance of it to Secretary Hay, to be submitted to the President, and by cable received approval of the same. I append my dispatch and that of Secretary Hay as Exhibit No. 6. When the order was made public on the Isthmus it was received with approval by both parties, and the arrangements made under it have proved, so far as I am advised, to be satisfactory.

THE CURRENCY AGREEMENT OF JUNE 20, 1904, AND THE BANKERS' AGREEMENT OF APRIL 9, 1905; THE NECESSITY FOR THEM; THEIR EFFECT, AND THE PROPER COURSE TO BE TAKEN WITH RESPECT TO THE FUTURE FINANCIAL OPERATIONS OF THE GOVERNMENT ON THE ISTHMUS.

In March, 1904, before the adjournment of Congress, Mr. Conant and Mr. Hanna, of the International Monetary Commission, came to see me in respect to the currency of Panama. The currency of Panama was then the Colombian silver. In the days of De Lesseps and the old Panama Canal Company there was great gambling in exchange on the Isthmus, and at times, although the exchange was only 5 per cent normally, it ran up to 75 and 80 per cent. A similar experience with the fluctuations in the Mexican dollar in the Philippines had produced great trouble for us in paying the civil servants of the Philippine government, and it seemed to me of the utmost importance that, if possible, we should secure a uniformity of monetary standard between the United States and the Republic of Panama.

The proposal to introduce into the Zone a different currency from that used in the Republic in Colon and Panama, which are the markets of the Zone, would result in great confusion and, as such differences in currency always do, would bring about loss to those least able to take care of themselves-the laboring class. For that reason I took up the matter with Mr. Conant, and my impression is that he submitted his proposition to some members of Congress. It was so late in the session that nothing could be done by Congress. He also conferred or corresponded with General Davis on this subject, and followed the proceedings of the Panama convention, which was then in session and engaged in considering a currency law. On the 7th of May Mr. Conant came to Washington and had an interview with the President on this subject. I was present. He submitted his views on the matter, and my recollection is that it was at that time that he advised me that the fiscal commissioners of Panama were in New York with authority to act. Perhaps it was earlier. At any rate, through him the fiscal commissioners came to Washington to visit me, and were accompanied by their counsel, Mr. Cromwell.

The conferences were held in my office between Admiral Walker and myself with Mr. Conant as our monetary adviser on the one side and Señor Arias and Señor Morales, the fiscal commissioners, with Mr. Cromwell, their counsel, on the other. I append the conversations, which were taken stenographically, leading up to the making of the agreement, together with the agreement, as Exhibit 7. This agreement was made the subject of a resolution introduced by Senator Bailey at the present session of Congress, and I appeared before the Finance Committee, to whom the resolution was referred,

to testify in regard to it. The resolution covered also the bankers' agreement of April 29, 1905, to which I shall subsequently allude and which has been discussed at considerable length before this committee.

There crept into the agreement, which took the form of a letter from me, a stipulation on behalf of the Commission as a legislative body that it would make the Panamanian currency legal tender in the Zone. This I am quite sure was done at the instance of Mr. Conant, as it is suggested in his memorandum and correspondence, already referred to. The Panamanian representatives did not insist upon this clause, and after the agreement had been signed, I carried in my mind the impression that that particular provision had been stricken out. I was wrong in this, but when I went before the Finance Committee, I freely admitted that the insertion of that particular clause was improper, and I did not assert the power on the part of the Commission to obligate itself to pass such a law, or, in fact, the authority to pass the law whether it had agreed to do so or not. As a matter

of fact no such legislation was ever adopted, and Panama never requested it. The clause was ignored. After this disclaimer before the committee, I understood the result of the informal conference of the committee to indicate their unanimous opinion that the remainder of the currency agreement and the bankers' agreement were within the competency of the Commission.

The stipulations of the currency agreement of June 20, 1904, were conditioned on the enactment of a law which had been before the Panamanian convention and which, my impression is, Mr. Conant had something to do with framing. Whether this be true or not, it was one of which Mr. Conant fully approved. It provides (for it is still in force) a gold coin as a monetary standard which is exactly the same weight as our gold dollar. It also expressly makes the gold dollar of the United States and its multiples legal tender in the Republic of Panama. It provides for the coinage of a silver peso, which by law it makes equal in value to 50 cents of American money. This coin was to be the most valuable coin in actual use and the one generally in use. The weight and purity of the silver in this coin made it about equal in intrinsic value to our standard silver dollar, and less by 7 or 8 cents than its legal value.

Under the agreement the Panamanian Government was to coin three millions of silver pesos for issue on the Isthmus. This, it was thought, would take up all the Colombian silver, and in fact it did. That Government also agreed to issue three million pesos more at the request of the United States Secretary of War, should the operations of the Commission on the Isthmus require it. It further agreed to deposit in a New York bank 15 per cent in value of the first issue of three millions of pesos to maintain the parity of the coins with their legal value of 50 cents gold. It further agreed, in case the coinage of more pesos was required by the Secretary of War, to deposit as security to maintain the parity of those additional coins, the seigniorage or profit made by the Panamanian Government in their coinage and issue. This was intended to secure upon the Isthmus a currency having the same monetary standard exactly as the currency of the United States and at the same time to give a currency with the chief coin in use of about the same size and value as that to which the natives were accustomed. Thus was avoided the necessity for the Commission of