Report of Special Panama Canal Commission


Material Information

Report of Special Panama Canal Commission with letter from the governor of the Panama Canal to the secretary of war, dated September 17, 1921 and letter from the secretary of war to the governer of the Panama Canal, dated October 18, 1921
Physical Description:
64 p. : ;
United States -- Special Panama Canal Commission
U.S. Govt. Print. Off.
Place of Publication:
Publication Date:


Subjects / Keywords:
Panama Canal (Panama)   ( lcsh )
federal government publication   ( marcgt )
non-fiction   ( marcgt )

Record Information

Source Institution:
University of Florida
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All applicable rights reserved by the source institution and holding location.
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oclc - 15010916
sobekcm - AA00006080_00001
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Plan of the report_----------------------------------- 5
Objects of the al------ -------------- --------- 6
Future policy, reference shops and ldry docks------------------------- 7
Basis of operation of canal-------------------------------------- 7
Capital"account to he stated------------------------------------------ 8
Tropical labr_--------------------------------------------------- 9
Rents and other perruisittes--_--------------------------____- 10
Bases for rates' of pa. ----------------------------------------------
Leave privileges -------------------------------------------------- 11
Open-shop policy --------------------------------------------------
Separation of Panama Railroad -------------------------------------- 13
Encouragement of agriculture -------------------------------------- 13
New auditing system---------------- ---------------------------- 14
Executive versus operative pay-------------------------------------- 15
Division of schools_----------------- -------- --------_---- 15
Police and fire division------------- ------------------_------------ 16
Division of civil affairs---------------------------------------------- 17
Courts -------------------------- ---------------------------- 17
Municipal division ---------------------------------------------- 17
Relations with Panama --------------------------------------------- 18
Relations with the military ------------------------------------------ 20
Health department ---------------- --------------------------- 21
Hospital division _____------ ---------------------- 22
Sanitation divii-on 23------- ------------ ---------- 23
Quarantine division_-------------------------------------24
Accounting department---------------------------------------------- 24.
Supply department --------------------------------------------------- 25
Columissary division __ _______---- 25
Miscellaneous activities of supply department --------------------- 26
Restaurants and hotels--------------------------------- 26
Electrical division _--------------------__----------_---------__ 27
Bureau of clubs and playounds------------------------------------- 28
Record bureau ------------------------------------_---------_ 28
Personnel bureau---------_---------_----_---------_--_---------- 29
Property and requisition bureau-------------------------- 29
Bureau of statistics------------------------------------------------ 29
Washington office__----------------------------------------------- 29
Division of lock operation --------------_ ------- 30
Dredging divis:ou _---------------- ------------------------- -- 30
Marine division___--- -------__-___----------------_ ----------- 31
Mechanical division ----------------------------------__- 31
Steamboat-inspection service_---------- ---_----__-----_----------- 32
Meteorological and hydrographic section ------------------------------ 32
Panana Railroad --------------------------------------------------- 33
Panama Railroad Steamship Line------------------------------------ 35
Conclusion------------------------------------------------------- 37
Letter from (Governor The P;anlll a (n';alil to Secretary of War. Sep;teinuer
17, 1921--------------------------- ----------------------- 38
Letter from Secretary of War to (ou\veriior The Panama C('anil. October
18, 1921---------------------------- ----------------------- 53




WASHINGTXN, D. C., September 15, 1921.
The SECRETARY OF VAR, Washington, D. C.:
SIR: The Special Panama Canal Commission appointed by your
letter of June 6, 1921 (see Appendix No. 1), to "investigate and
report upon existing conditions relating to the care, maintenance,
sanitation, operation, and government of The Panama Canal and
Canal Zone, including all matters affecting the Panama Railroad and
the Panama Railroad Steamship Line, and to make re -ommendations
relative to any changes in such conditions affecting the organization,
government, and operation of The Panama Canal and Canal Zone,
and the operations of the Panama Railroad Company," has the honor
to submit the following report:
The chairman of the commission, Commissioner Fry, Commissioner
Molitor, and Secretary E. H. Van Fossan sailed from New York on
the Army transport Canftigny June 10, 1921, arriving at Cristobal
on June 18, 1921. Commissioner Wilson sailed from New Orleans
on June 22, 1921. arriving at Cristobal June 27, 1921. Commissioner
Molitor sailed from Cristobal July 8, 1921, arriving at New York
July 16, 1921, where he continued his survey of the Panama Rail-
road Steamship Co. The remainder of the commission, with other
personnel, reached New York July 31, 1921.
In accordance with your instructions, the cominia-ion made a
thorough investigation into all phases of the activities of The Pan-
ama Canal and the Panama Railroad, including the steamship line.
Immediately upon its arrival on the Isthmus the entire commission
made a general inspection of the Canal Zone to give the members
a proper perspective of the major activities and the general problems
involved. Thereafter, the individual commissioners made detailed
investigations of the divisions falling within the allocations made
to each based upon his technical qualifications.
Numerous conferences were held with the governor and other prin-
cipal officials of the Canal Zone, Panama Railroad, and Panama Rail-
road Steamship Line. These officials met the commission in a spirit
of cooperation and at all times accorded every assistance to the com-
mission in its endeavor to arrive at correct conclusions as to present
conditions. In the majority of cases the Government representatives
in the Canal Zone are men of ability and of undoubted loyalty to its
best interests, and we feel that in whatever policy may be decided
upon, you will have the support of the canal executives. Most of
the recommendations contained in this report were fully discussed
with the governor and his principal assistants and have received
their concurrence.
Immediately upon the arrival of the commission on the Isthmus
public notice was given through the newspapers, setting forth the
reasons for the commission's visit and stating that full information


was desired, and that public hearings would be given to any and all
who desired to be heard on subjects within the jurisdiction of the
comnlission. Hearings were granted to all groups of employees and
other persons requesting same.
The commission desires to-add its testimony to that of all others
who have viewed this work of Ameriicn genius and energy and to
record' its unfeigned admiration for the foresight, courage, and abil-
ity of those who conceived and successfully accomplished this gigantic
task. It is an enduring monument to the ability of the American
nation to achieve that which it purposes, and as such all Americans
may justly take pride in the accomplishment.
The idea is prevalent in the Canal Zone that our Government is
on trial in the eyes of the traveling public by the way that it admin-
isters the canal, and this idea permeates through all decisions affect-
ing the upkeep and operation of the canal. To a certain extent the
Co nImis.ion agrees with this, and it is not believed that any recom-
mendations contained in this report will lower the United States in
the opinion of the traveling public. On the other hand, the com-
mission does not feel that gratuitous services should be performed
at the expense of the United States, or that too much money should
be expended merely for show purposes.
It has been thourlght desirable that this report should be made :as
brief as is con'-istent. with clearness and thoroughness, and to that
end it was decided to confine the main body of the report to:
(a) Full recommendations on certain questions of policy which the
commission regard as of fundamental importance.
(b) A brief statement regarding each activity that sumnmnarizes the
commission's views thereon and contains only general recommenda-
The reports of the individual commissioners which are attached as
appendices, give the personal views of the commissioner writing the
report, but at the end of each appendix is a concise summary of the
recommendations contained therein which express the views of the
commission as a whole. Wherever a difference in wording exists
between the recomln endations in the individual reports and those in
the suinmmary attached thereto, the wording of the latter should be
taken as the official recommendation of the commission, although
owing to the brevity of some of the recommendations, reference to the
individual reports should be made to obtain the full spirit.
The dec(isiins of the administration on the fundamental questions
of policy are conditions precedent to the approval of tile more de-
tailed recommendations of the comn:is-ion. Broadly speaking, most
of the recommendations stand or fall with the Goveirnment's decision
as to the future policy as to how The Panaim: Canal shall be re-
garded and operated.

The Panlama Canal was constructed for two purposes (a) as a com-
mercial enterprise and (b) as a measure of national defense. The
first of these purposes can be measured in dollars anti cents and
should form the measure upon which the commercial operating cost
is justified and upon which amount the Government can justly look
for an adequate return. The second purpose can not he measuiredl il


money and hence should constitute a sum from which the Government
can not look for any financial return., and which will be a continuing
source of expense.
In entering upon its duties the commission early considered the
object for which the canal was built, and came to the conclusion that
there was probably no single primary object. In the minds of some
legislators this primary object was undoubtedly that of national
defense; whereas in the minds of others it was probably justified as
a commercial enterprise. There is no doubt, however, but that the
military needs were fully considered in the design and equipment of
the canal, and that the canal to-day is, amongst other things,a splen-
didly equipped naval repair and coaling base. Assuming that this
was the intention in the design and equipment of the canal, the com-
mission has been unable to find anything that justifies the continued
expenditure of canal funds to maintain a naval base at this place.
Congress has not appropriated money therefore, the Navy Department
has made no allotment to it for that purpose, and has not used it as
such except for the occasional naval vessels that pass through the
canal. Notwithstanding these facts, the maintenance of the facilities
and of the force of operatives has in the past to a very great degree
been influenced by the belief that the canal must be maintained as a
naval base, ready to do any class of work for which it is equipped.
This opinion is believed by the commission to be one of the funda-
mental causes of unwarranted expense, and 'one of the stumbling
blocks to an adequate reduction in working force and in overhead. da.t;on .s.-The commission regards the continued opera-
tion of the shops. dry docks, or any other part of the Panama Canal
plant. as potential naval activities to be unjustified and an unneces-
sary burden on the canal appropriations. We recommend that the
maintenance of any such activities as naval auxiliaries cease imme-
diately, and that hereafter the canal be operated entirely as a com-
mercial agency until Congress shall otherwise indicate and appro-
priate therefore or until the Navy Department can provide the funds
necessary for the proper operation and maintenance.
The commission further recommends that any part or parts of
the canal activities not necessary for the ordinary commercial and
canal activities be closed up, the employees be discharged, and the
machinery and other material or equipment be laid up and prepared
for prolonged idleness. except as provided for in the preceding para-
The Panama Canal, the Panama. Railroad, and steamship line are*
now all on an operating basis, and they should be treated as grmat
commercial or business enterprises in which operations must justify
costs, and those in charge should be held to strict accountability for
successful. efficient, and economical management. Further recom-
mendations are based on this assumption.
The most obvious criticism of the administration of The Panama
Canal and its allied activities during the past few years is that
economy of operation has not been given sufficient consideration and
it has never been placed on a sound operating basis. It has been
treated apparently as a public improvement in the United States
where no direct return is expected and where the benefits derived


are in the form of an indirect return only. The Panama Canal is
not such a public work; it is used by the world at large and not
solely by our own people. It was constructed by one nation for
the use of all nations and we therefore have the right to expect the
users to pay for its maintenance and operation plus a reasonable
return upon the investment therein. Our people are actually paying
these amounts now and any policy that does not work toward reim-
bursing them for such expenses is fundamentally erroneous and un-
sound. The only way that this can be accomplished is to establish a
capitalization upon which the Government ultimately expects an
adequate return, and for this purpose, what may be called the '" com-
mercial value" of the canal ought to be established. In consider-
ing this matter it immediately became manifest that the value of the
canal as a military asset could not be estimated in dollars and cents.
A great part of the cost of the canal is for things that are admittedly
military, and in capitalizing the canal for commercial purposes these
must, of course, be omitted. But in addition to them there is a great
part of the cost that must be written off, for the canal would not have
been constructed as it is purely for commercial purposes, and the
question now arises as to how much of the cost of the canal proper
ought to be set up as the amount upon which a return ought to be
The Panama Canal represents an expenditure of $485,000,000.
The figure thus arrived at includes the actual cost of construction
plus a carrying change, or interest on the investment, of approxi-
mately 3 per cent up to the official date of opening, July 15, 1920.
Add to that the deficit of last year of approximately $12)O00,000 (if
interest had been computed), and the canal to-day represents an in-
vestment of approximately $500,000,000. This sum. however, does
not represent the amount that would have been necessary to build a
commercial canal, and it is not the sum upon which the Government
should expect a return.
Recomini ,n datios.--The commission doubts very much whether any
fraction of the above sum could be arrived at which would represent
the correct commercial value, but it recommends that a careful study
be made of this matter and that a definite sum be determined upon
as the cost of the canal as a commercial enterprise. The actual cost
of the canal may have to be written down to obtain this figure, and
if so, it should be so written down and an arbitrary figure should
be established as the commercial value of the canal, and thereafter
that figure should be used in the operation and official reports as the
capital account upon which returns and expenditures should be
Having arrived at this figure, the commission further recommends
that the same be subdivided and that an allocation be made to each
activity under the canal administration, and that thereafter the sum
allotted to each of these activities shall be the one that must be used
in justifying the continued existence of the activity concerned.
There are certain activities, such as sanitation, hospitalization, fire
and police protection, which obviously are not activities from which
commercial returns can be expected. These and other similar ones
should be attached to the canal operation proper and the cost thereof
borne by the canal operations. By capitalizing the canal and its vari-


ous subdivisions, as herein suggested, it is believed that many desir-
able results will obtain, for thereafter not only the canal as a whole
but each of its allied activities will be given a measure by which the
efficiency of their operation may be determined.
One of the greatest causes of expense in the operation of the canal
is the continued employment of United States white citizens instead
of the use of natives of Panama or adjacent. islands.
In pursuing this policy we have bodily transplanted an American
community to a tropical country and are using American workmen in
all except the very lowest grades of labor. This is contrary to the
policy of any commercial concern operating in tropical countries and
contrary to the policy pursued by any other Government that is
known. The ordinary policy in all such cases is to utilize the native
laborer to the extent, of his ability and to educate him to take over
positions of greater responsibility, using white employees from the
home country to the minimum possible percentage. This plan not
only reduces the cost of the operation and the call upon the man power
of the home country, but it is also a benefit and a blessing to the
tropical country concerned in that it employs its nationals and edu-
cates them in the arts and trades. Our citizens are accustomed to a
temperate climate, and as such are physically unsuited to labor under
conditions that exist in Panama. To obtain employees who are will-
ing to go to the Tropics and follow their trades there we are forced
to pay exorbitant. wages and to bear many additional expenses as
bonuses for things that are necessary for a citizen of the United
States in the Tropics but which would be unnecessary if local labor
were employed.
There are many positions for which local labor is manifestly un-
fitted, due to lack of skill, and others on which it ought not to be
employed inasmuch as they are aliens. But, on the other hand,
there are a great number of positions that can be filled by native
tropical labor without any sacrifice of efficiency and at a tremendous
saving to the Government.
During the construction days the policy of employing our citizens
was justified in a far larger measure than it is under the period of
operation because time was very essential and because during con-
struction many positions were far more important when the time
element was considered than a similar position is to-day under oper-
ating conditions. We would be justified to-day in training tropical
labor to fill the various positions, whereas in construction days the
time element did not permit the administration to delay the work
lone enough to attempt, the instruction of local labor.
Recom.menlnat;ons.-The commission therefore recommends that
the governor be informed that conditions have now changed to such
an extent that it is desired that he emplov tropical labor and artisans
to the maximum extent possible, taking into consideration the fact
that the canal is. to a certain extent, an element of national defense
and that there may be certain positions in which aliens ought not
to be employed, but that in all other positions he employ local labor
to the maximum, and that he institute a system of apprenticeships


and training by which he can build up a larger force of skilled tropi-
cal labor.
It is believed that this alien labor can be employed in much greater
numn)bers and in much higher positions than they now are, and it is
further believed that after the policy above enunciated is carried out
that within a few years most of the positions, including those of oper-
ators of mechanical contrivances, can be filled almost wholly with
tropical labor.
It is further recommended that the pay authorized to this class of
labor be iiicreased in due course to meet their increasing capacity.
The white em)ployee- of The Panama Canal enjoy many perquisites
which materially reduce expenditures from their salaries and in
effect constitute a material inc're:ia in such -alaries over what they
officially receive. These perquisites are as follows:
Free housing, heavy furniture, water, garbage collection, grass
cutting, gardening, electricity for light and heat. otlier necessary
fuel, and, for bachelors only. free janitor service.
Exclusive of electrical service, these perquisites cost the Govern-
ment approximately $. 0,000 per year in actual outlay, an expendi-
ture which the commission does not believe is contemplated by their
contracts or is justifiable in view of the high pay they receive. The
argument is made by them that all American firms operating in
tropical countries furnish such service to their employees, and this
of itself is the truth, but on the other hand, the commission is con-
vinced that no commercial corporation pays in addition thereto the
high wages that the United States pays its operators on the Isthmus,
nor are conditions in other places comparable with those existing in
the Canal Zone.
Recomnendations.-It is therefore reconumended that rental be
chliared for quarters occupied in all cases where such quarters do
not form a part of the basic wage, and that the rent be determined
as follows: First, write down the book value of the quarters to its
present depreciated value of $3,435,076, and upon this value charge
5 per cent for amortization and interest. Add to that amount the
cost of repairs due to ordinary wear and tear, plus the cost of garbage
disposal and other services necessary from a sanitary point of view,
and prorate the resulting amounts among the houses according to
the amount of floor slic:e. including porches, in each set of quarters.
The result will be the rental for housekeeping quarters. For
bachelor quarters and nonhousekeeping quarters, add certain fixed
sums for janitor service, light, and water as set forth more in detail
in Appendix No. 1, page 40.
It is further recommended that the repairs to furniture, repairs
to stoves, and care of grounds at the cost of the Government be
entirely stopped, and that they be paid for when desired by the in-
dividual concerned.
It is further recommended that a charge be set up for water used
by the employees at a rate comparable with rates in the United States,
and proportioned to cover the amount of water used. Meters are
not recommended on account of their cost.


It is further recommended that electrical service for light and heat
be charged for in married quarters..,ccording to consumption, and
that all such quarters be metered, the charge to be 5 cents per kilo-
watt hour. as elsewhere recommended.
The rates of pay among canal employees are to a certain extent
fixed by law, which provides that they shall not receive to exceed 25
per cent more than is paid by the Federal Government to similar
employees in the United States. This provision has been found not
to cover all classes of employees, for there are certain positions on
the Isthmus for which there are no similar positions in the govern-
mental service in the United States. It is fairly easy to handle the
class of positions comparable with Government. positions in the
United States and determine the rate of pay, but in the class where
no such comparison can be made it is not so easy, and the commis-
sion found several instances where men were glaringly overpaid in
the canal service. In most of these instances the employee had been
carried over from the construction days, and his pay is based upon
the pay he received in the construction service, and although his
ability is the same as it formerly was, the work on which he is now
employed does not justify either the employment of a man of his
ability or the payment of the wage he is now receiving. In certain
other cases the commission is convinced that precedents were used
which ought not to have applied, and that the bases were adopted
either through lack of knowledge of the special conditions governing
that class of service or through negligence.
Recommenti fla ,on.-It is recommended that the bases upon which
canal wages are determined be gone over carefully and that they be
readjusted, both with respect to the qualifications for the actual posi-
tions, which are often too high, and as to the basic rates upon which
the canal wages are fixed, and that care be taken that there is a dis-
interested person on the board at all times thoroughly conversant
with the class of employment under consideration.
That in deciding on the basis for rates of pay when the wage is
per hour consideration be given to the fact that in most cases in the
United States, especially in the North, the hourly rate is fixed on
such a basis as to give the man a suitable wage per year, taking
into account the fact that he can not work during certain consider-
able portions of the year on account of inclement weather.
It is believed that the existing leave privilege., are greater than
are necessary or advisable. They were established as an inducement
and a health conservation measure during construction days under
conditions which no longer exist.
Recom mei datl/oa.---It is therefore -recommended that the present
annual leave policy be entirely changed and that hereafter leaves be
granted as follows:
(a) Thirty days' annual leave, cumulative for three years only.
(b) At the end of one year no travel time to be allowed.
(Ct At the end of two years, 7 days-' travel time in addition to the ordinary
leave to be allowed.


(d) At the end of three years, 14 dlays' travel time in addition to the ordi-
nary leave to be a ll\, ed.
(e) The present l'1i, Y of al.i\\ ian" sick leave to be roilniilted intn ordinary
leave to be disci-ntiiiied and an employee to be allowed full pay for days sick
under the same rules as laid down for similar employees in the civil service
in continental United States.
(f) Leaves to, be allocated among the employees so as to distribute them
evenly over the year and not be given so as to concentrate all leaves. during
any short period of the year.
(g) F',r employees g..inLI on leave an allo\wance of $37.50 for himself and
each member of family to be allowed each way only in case the leave is taken
at the end of two or three years and the employee spends his leave in the
UI'iti.,l States. .Mfemiber of family within this meaning to be wife or children

In theory the open-shop policy is followed on the canal, but in
some (departments it is only a theory and the employees are com-
pletely unionized. The commission fully believes in collective deal-
ing between the operatives and the executives on the canal and be-
lieves that thereby misunderstandings will be obviated and cordial
relations will be maintained, but it is absolutely opposed to having
the policy on the canal dictated by labor organizations of the United
States or elsewhere, and it is equally opposed to outside agencies
coining" into the Canal Zone and fomenting dissatisfaction. The
GovenlIment should be willing to pay wages which, when all things
afe taken into account, compare favorably with the wages paid by
private agencies for the same service, but it should pay no more.
Wages paid in the United States should form the basis for the wage
scale in the Canal Zone, and it is intolerable that any group of em-
ployees should be able to force higher wages or better conditions by
political methods.
Reccn ii ,,n .f;,s.-The commission recommends that the gov-
ernor be directed to make no agreements nor to have any under-
standings with the canal employees or any class thereof, for any
period of time, but that the wages be adjusted from time to time in
accordance with the law, which bases the canal wages on the pay of
similar employees in the Government service in the United States.
It is further recommended that for positions for which there is
no corresponding position in the Government service of the United
States, wage boards of the canal fix an average wage based upon the actually paid for similar services in various representative
parts of the United States, and that it be not based upon any arti-
ficial rate known as the "union rate" which is not actually in effect
and in operation.
It is further recommended that the governor be directed not to deal
with labor organizations as organizations, but that he may deal with
committees of employees.
It is further recommended that the open-shop principle he actually
put into effect on the Isthmus and that in all departments a substan-
tial proportion of nonunion men be employed.
It is further recommended that all agreements limiting the use of
tropical labor !ie abrogated and that hereafter no such agreements
be entered into or followed and that this include all understandings,
such as the edged-tool understanding and the Ford-car understand-
ing, the canal administration hereafter retaining complete freedom


of action as to its policy in the employment of union, nonunion, or
tropical labor.

Notwithstanding the fact that the Panama Railroad Co. is an in-
corporated company chartered under the State of New York, the
operation of the railroad and the steamship line has been so merged
into the operation of the canal that they have lost their identity.
Due to this mer,,er many of the railroad company's activities have
been absorbed by the canal and are being operated by the canal ad-
ministration more to its benefit than the railroad. The commission
believes that the present deficit is largely attributable to this merger
and is convinced that if all railroad activities be returned to the rail-
road management that the road will show a profit under the present
tariffs and that in all probability can do so even with reduced tariffs.
Recomi mendathlns.-It is recommended that the operations of the
Panama Railroad Co. be entirely divorced from those of the canal,
and that in the future the railroad and steamship line of the
Panama Railroad Co. be operated and accounted for as are similar
commercial activities in business.


Under the present policy the Canal Zone has practically been de-
populated, and generally speaking there is no agriculture or truck
gardening encouraged. It is believed that this is an undesirable
condition from three points of view:
(ai The local food supply on the canal is very deficient in quantity and
quality. It is believed that as a military measure the Canal Zone should be
as nearly self-supporting as possible and that agriculture should be encouraged
in every possible way.
(b) The prices charged for food supplies that could be raised locally are
exorbitant and the amount of produce raised is very small. This operates as
a hardship on the employees and is a ridiculous situation in a tropical country,
where local food products should be plentiful and cheap.
(C) It is exceedingly desirable for many reasons to have a large force of
common labor available for use on the canal, and a great number of West
Ind:ans have been encouraged to remain in the zone in order to have this
pool of labor. The number desired is far greater than can be given continuous
employment, and as a result these West Indians are employed only about half
the time.
The hourly wages that they are paid are better than those paid
anywhere else around the Caribbean, but notwithstanding this the
total amount received per family is not sufficient to support the aver-
age family. This was the conclusion of the British board that inves-
tigated the subject, and is the conclusion of the commission. The
West Indian is naturally a farmer, although a poor one, and is used
to having a small plot of ground upon which he can raise his essen-
tial food requirements. If, in addition to the food he can raise on a
small plot of ground, he is able to earn a small amount in money,
he can live comfortably on a far smaller salary than is now paid him.
In the Canal Zone he has no land and no opportunity to do the little
farming necessary for his food requirements, and the total amount.
of money he receives from the canal is insufficient for his needs under
the. present high cost of urban living in the zone.


For the reasons above set forth, it is considered highly essential
that the Canal Zone be thrown open to truck gardening and farming
along the line of the railroad. There can be no objection to this from
a military point of view, for the methods of warfare have so changed
in the past 10 years that the cleared ground along the railroad is
not a military danger. The commission was informed by tile chief
health officer that if the natives' houses are grouped in small villages
around which their farms are located, there would be no objection
from a sanitary point of view.
Recoien I,(idti;ojns.-It is therefore recommended that the Canal
Zone, and e-pecially that part along the railroad and lake, be thrown
open to agriculture immediately, and that agriculture and truck
gardening be encouraged in every way.
It is further recommended that the Panama Railway be the agency
through which the natives' houses are constructed and the neces-
sary land cleared to start this agriculture.
It is further recommended that the open pasture lands near the
railway stations be the first lands opened up.
It is further'recommended that a farm demonstration bureau be
established to help the native farmers, both as to what they can best
raise and as to how they can obtain the best results.
It is further recommended that to such extent and under such and
similar regulations as the public domain in continental United States
is. available to beneficial use through private agencies that the
Canal Zone be thrown open to the public not only for agriculture
but also for other purposes.

In its investigations of the canal, the commission, on account of the
auditing system in vogue, obtained only with great difficulty the in-
formation that it desired in regard to the financial condition of the
various activities. The auditor performs very few of the real func-
tions of an auditor, but is rather a sort of general manager of the
canal administration, without having the name, and without having
a proper organization to perform those functions. The auditing
system as at present installed does not give a correct view of the
financial standing of the various activities, and the commission re-
gards the establishing of a proper auditing system as one of the prime
requisites to the economical operation of the canal.
Recon t ~< i/t ons.-That the present auditor's office be totally re-
organized as set forth in greater detail elsewhere in this report, and
that a recognized firm of chartered accountants be employed to set
up a modern system of business accounting, including such specific
accounts as are desired for the use of Congress, and to reorganize the
entire auditor's office in conformity therewith, including such changes
as will carry out such recommendations of the commission as may be
directed by the Secretary of War.
It is further recommended that if the preceding recommendation
be not approved that the duties of the auditor be entirely revised and
restated, and that in the future he be an auditor pure and simple and
be divested of the many other miscellaneous functions that he now
exercises, and that as auditor he install a modern system of business
accounting recommended in the preceding paragraph.


It is further recommended that there be set up in the canal ad minis-
tration, an executive officer whose time shall be devoted to the detailed
examination and coordination of thie various activities of which the
canal organization is made up. This executive officer should be a
man who, in commercial life, would correspond with the general
manager of a private corporation. He should relieve the governor of
all executive details, and for this purpose we recommend that the
services of a with wide experience in large business undertak-
ings be obtained.
The commission desires to invite attention to the fact that the
modern business policy, and particularly the policy of business
agencies conducting operations in tropical countries, is to employ
high-grade executives, pay them well, and hold them responsible for
results. They employ as few of these executives as possible, and trust
to their energy and ability to bring about results with low-grade
employees, and they do not spend the larger sums that would be
necessary; to fill otler minor positions with highly paid operatives.
On The Panama (Canal the policy is apparently the opposite. The
operatives are individually exceedingly skilled, and their pay is cor-
respondingly high, whereas the executives are not paid salaries com-
mensurate with their responsibility, and in many cases the results
show in the poor return to the Government. The commission believes
that the first-mentioned practice is not only the best, but is the most
Ke omu n d tii io i.i.-It is therefore recommended that the salaries
of the canal executives be increased wherever necessary to obtain and
keep the services of high-class men competent to handle the large
affairs for which tlhey are responsible to the Government. The pay
of the. governor oulrhit to be- increased 50 per cent, and similar
increases made for suich of his chiefs of divisions as prove competent
to handle the lara'e affairs in their charge, and wherever necessary
under the reorganization, new men should be employed especially
fitted for the po-itions.
The foregoing recommendations are tho-e which the commission
considers as fundamental, and to them it invites your first
tion. Our report will now take up in detail the various divisions of
the canal administration, giving for each a brief summary of condi-
tions as we found them, and following each with general recom-
mendations in regard thereto. No particular arguments nor de-
tailed recommendlations will be made in this part of the report, the
support for them will le found in all cases in the individual reports
of the commissioners in the appendices attached hereto, and in the
detailed recommendations at the end of each appendix.
The public school system of the zone consists of grade schools for
the colored children and grade and high schools for the white chil-
dren. There are 63 white teachers employed in the white grammar
schools and 24 colored teachers in the colored grammar schools.
There are 17 high-school teachers in the white high schools. There
are 1,711 white pupils in the grammar schools, or approximately 27


pupils per teacher. There are 1.199 colored pupils enrolled in the
colored grammar schools, or an average of about 50 pupils per
teacher. There is an average of 16 pupils per teacher in the high

After a very thorough inspection of the school situation in the
Canal Zone the commission is convinced that in so far as the white
schools are concerned they are superior in practically every way to
any with which we are familiar in similar localities in the United
States. The qualifications for the teachers are higher and the physi-
cal condition of the schools is consideral ly better than in the United
States. The schools are not crowded and the number of teachers is
siiffii ent to give proper instruction. The pupils, as a rule, seem to
be briaChter, better dressed, and more alert than are those in similar
schools at home.
Conditions in the colored schools were not so satisfactory and it
was found that they were overcrowded and had a de :ided deficiency
in teachers. The commission is of the opinion that good schools for
the colored children are very necessary and recommends that. the
colored-school facilities be somewhat improved and that the salaries
of the teachers be slightly increased.
Detailed recommendations to accomplish these results are set forth
fully on page 46, Appendix 1.
The fire and police protection in the Canal Zone are combined in
a single service under the chief of fire and police. The police force
consists of 10 officers, 15 sergeants, 115 privates, and 35 second-class
privates. The rates of pay of the police are based on the rates paid
in the District of Columbia, but in no case are they given more than
14 per cent increase over the rate for the District of Columbia. The
colored policemen are paid from $720 to $960 per annum.
Approximately 74 men are on what is called "special duty" in
connection with activities not properly pertaining to municipal po-
lice work, such as in charge of prisoners in penitentiary, or of work-
ing parties of prisoners, watchmen in public buildings, watchmen at
piers, and on lake patrols.
The local prisons.and the penitentiary were found to be well kept
and not overcrowded. Ultimately provision must be made for a new
and modern penitentiary, but it is not believed to be necessary until
the transcontinental road is completed.
The fire department consists of the chief, deputy chief. 2 captains,
6 lieutenants, 2 sergeants, and 32 privates. The entire department
is white and the personnel and equipment reflect great credit on the
The department is organized on the one-platoon system, and the
membie-, are therefore on duty three days in four. It was ascer-
tained that of 610 cities in the United States having paid fire de-
partments approximately 60 per cent are organized on the two-
platoon basis.
The pay of the firemen is based on that of firemen in the District
of Columbia, but in no case do they re, eive more than 11 per cent
over the base pay. The number of fire calls in the Balboa District
during the fiscal year 1921 was 71, or approximately 6 per month.


The number of calls in the Cristobal District was 44, or less than
4 per month.
The commission believes there should be an increased use of silver
employees in both the police and fire departments, and that suffici-
ent saving can thereby be made to permit the establishment of the
two-platoon system in the fire department and to improve the colored
schools as recommended, without any increase in the total cost of
these divisions.
Detailed recommendations to accomplish this result, are set forth
on page 47, Appendix 1.

This division includes the bureau of post, customs, shipping com-
missioner, and administration of estates, which in our opinion are
neither necessary nor proper activities of the Canal Zone govern-
ment. The commission believes that all the functions of this division
should be transferred to the departments of the Government by
which they are controlled in the United States proper, and that, after
these transfers are effected, this division should be abolished.
Detailed recommendations to effect these changes will be found on
page 18, Appendix 1.

The court system of the Canal Zone consists of one district court
and two magistrate courts. There is a United States district attorney
and a United States marshal, who has a deputy marshal. After full
consultation and consideration the commission is of the opinion that
the duties of marshal can be performed by the present chief of police.
It was found that there is no court now constituted to hear the
cases of juvenile delinquents, of which there is a considerable num-
ber. It is believed that provision should be made for such a court.
Detailed recommendations to accomplish these results will be found
on page 48, Appendix 1.

The municipal engineer has charge of what would correspond to
the city engineer's work in a municipality in the United States. He
performs these functions not only for the Canal Zone, but also for
the municipalities of Panama and Colon. His force consists of 90
gold employees and 770 silver employees.
This division has recently had consolidated with it practically all
of the division known as the Building Division, and as a result reor-
ganization was in progress. The municipal engineer has made and
is planning to make within the next few months a considerable re-
duction in force and a consolidation of the activities which are now
operated as separate sections of his work. In our recommendations
it will be treated as though no reorganization were in progress or
contemplated by the municipal engineer himself.
The commission found that this division was very much over-
organized and that employees were in many instances overpaid for
the work that they were actually performing. In some cases the num-


ber of employees is much in excess of present needs and, in general, a
very considerable reduction in force can be made. This is especially
true if this and several other small divisions can be consolidated.
Detailed recommendations to accomplish these results are shown
on pages 49-51, Appendix 1.
Matters concerning the relations between the canal administration
and the Republic of Panama are handled through the executive sec-
retary to the governor. There is no other special personnel engaged
exclusively on this work. There are several matters which have
formed continual bases for argument between the canal authorities
and those of the Republic for some time and which will be separately
The Republic of Panama has taken the stand that the commis-
saries ought to sell only necessities to employees of the canal. In the
opinion of the commission they have ignored the word convenient"
in section 13 of the treaty. It is believed that their contention is
without foundation and that the canal authorities are absolutely
justified in bringing in free of duty and selling to the employees any-
thing that good policy dictates.
It is further complained that the commissaries sell certain supplies
to ships transiting the canal or touching at Cristobal. This custom
arose in the early days of the canal and was undertaken because
there were no firms in Panama or Colon organized and equipped to
furnish this service to ships. In the opinion of the commission the
supplying of ships transiting the canal is not a proper function of
the Federal Government except in so far as supplies can not reason-
ably be otherwise obtained. It is believed that this Government
should encourage rather than hamper by unnecessary rules and regu-
lations the practice of allowing representatives of local firms to go
aboard ships and solicit business and that every encouragement
should be given to the development of private sources of supply.
The Panaman representatives urged that certain lands in the cities
of Panama and Colon should be turned over to the Panaman Govern-
ment. It is not believed that there is any basis for this contention,
inasminch as the treaty specifically provides that these lands in the
cities of Panama and Colon shall become the property of the United
They further contended that in the debt set up against the Re-
public of Panama for municipal improvements in Panama and Colon
is included the cost of paving, sewers, and water service for certain
lands belonging to the Panama Railroad. This is true as far as the
property existing at the time of the treaty is concerned, but- is not
true with regard to the conditions that have obtained since in the
addition of land to the city of Colon by the reclaiming of swamp
land. The lots in the old cities of Panama and Colon belonged to
the railroad at the time the treaty was written and therefore the cost
of these improvements was certainly contemplated by the treaty.
The cost of improvements in the newly reclaimed land has been borne
by the Panama Railroad and The Panama Canal and has not been
added to the debt of the Panaman Government.


It was claimed that the freight rates to the canal commissaries
were less than those to merchants 'ii the city of Panama. This may
or may not be true, as the commi-sary pays a lump sum to the Pan-
ama. Railroad regardless of the amount of freight 'ca rriitl. Eb-ewiere
in this report it is recommended that this practice be discontinued
and that the commissary be charged exactly what other patrons of
the road are charged for similar service.
The committee representing the Panaman Government desired that
the United States determine defnitelv its needs as regards land for
fortifications and other purposes in tle Republic of Panama. To do
this the Federal Government would be giving up certain just rights
for which it paid the sum of $10,000,000 and for which it is paying
annually the sum of $250,000 to the Republic of Panama.
Similarly the committee desired that in case the United, States
wishes further territory for any purpose, such as the island of To-
bago for fortification purposes, this Government should not only pay
the Republic of Panama for surrendering its sovereign rights but
should pay the owners as well. This contention is believed to be
entirely without merit. as it is fully covered in the treaty, and the
right, to acquire such further lands as might be needed was purchased,
among other things, at the cost of $10,000,000.
The Panama committee also claimed that the treaty in article 10
does not exempt from Panaman taxes certain property of the Panama
Railroad existing in Panama and Colon inasmuch as the activities
exempted were only those appertaining to the railroad." This is
an involved question the determination of which depends entirely
upon the terms of charter and the concession under which the rail-
road operates as well as on the terms of the treaty itself and is not
of such a nature as the commission feels qualified to handle.
An examination of the financial relations between the Republic of
Panama and the canal shows that the annual installments on the
debt of the Panaman Republic for the construction of public works
in the cities of Panama and Colon are not being fully paid, although
the rates charged for water rents are very,high. The part of this
debt arising from the city of Colon is gradually being paid, but the
part arising from the city of Panama. is growing, until the total
now amounts to $62,256.12l for Panama and $11,592.05 for Colon.
In spite of this fact the United States Government is paying the
Republic of Panama $250,000 per annum promptly and regularly.
A local attorney came before the comnmis-ion and submitted an
argument to the effect that the proceedings and decisions of the joint
commission provided for in the canal treaty did not give a clear title
to the United States for the lands in the Canal Zone, his argument
being that. the proceeding s were entirely in i'irn whereas they
should have been in rem. He contends that the Federal Govern-
ment should, through the district court, institute condemnation pro-
ceedings and that the action of the joint commission should be con-
sidered only as that of a board of appraisal. In this matter the com-
mission is advised that such legal tests as have been made of the
powers of the joint commission have resulted in upholding its juris-
diction. Furthermore it would seem to be a matter in which the
United States should not take action which might be'construed as an
admission of a defect in its title. As representative of local land-


holders, this attorney is not believed to be without personal interest
in the matter.
Considera1,ble consideration has been given by the commission to
the question of the advantage to the United States of making Cris-
tobal a port of entry to the United States. This matter has been
under discussion in various quarters for some time and much has
been urLed in favor thereof. It has been suggested that this can not
be accomplished without the abrogation of the so-called Taft agree-
rment. The canal authorities believe, and the commission concurs in
the belief, that the time has arrived when both the treaty with the
Republic, of Panama and the Taft agreement should be revised and
rewritten in the light of present-day conditions.
The commission is convinced that direct action between the canal
administration and the Panaman Government leads to friction rather
than to the adjustment of difficulties and it is further convinced that
the matters now pending between the Panaman Government and the
United States relative to questions arising from the administration
of the Canal Zone should be taken up and settled in the immediate
future in order that both parties may know where they stand and
that the present conditions shall not be aggravated by uncertainty
as to what the final decision will be or by whom it will be made.
Detailed recommendations which, if put into effect, will improve
the relations with the Panaman Government are given on pages
51-53, Appendix 7.
The personal relations between the officials of the canal and the
officers of the military garrison are as cordial as usually obtain
between officers of the different branches of the service, but officially
there is much to be desired. The military authorities lay undue
stress on the necessity of certain things from a military point of
view, basing their arguments on what might happen in case of war.
On the other hand, the canal authorities emphasize too strongly the
necessity that no ship be delayed a minute in its transit of the canal
beyond the time physically necessary to put it through. It is be-
lieved that if both parties would give and take to a greater extent
there would be no question arising that could not be settled to the
satisfaction of all concerned by the authorities in the zone.
The question of most immediate importance between the canal
authorities and the military authorities is that of a bridge across the
locks in the neighborhood of Pedro Miguel. There is at. present a
garrison of about 2,500 persons on the west side of the canal. There
is no general means for wheeled vehicles to cross the canal. An
agreement was reached between the commanding general and the
Governor of the znne looking to the construction of a swinging bridge
at this point, but its use was to be limited to time of war and to a
short period annually in time of maneuvers. In the first place the
cost of this bridge is estimated as something over one-half a million
dollars, which puts its construction far into the future, and in the
second place the limitation on its use would not serve the garrison
Son the west side of the canal. At the present time there is a means
of passage for foot passengers, animals, and small vehicles as large
as a Ford car across the top of the lower guard gates of the lock. A


posted sign prohibits the passage of vehicles weighing more than 6
tons, but inasmuch as the 3-ton truck will ordinarily not exceed
this weight when loaded, this passage can be made suitable to all the
present, transportation needs in time of peace. We believee that the
lower guard gates of the Pedro Miguel locks should be adapted for
use as a bridge for general highway traffic.
There is a constant demand for a road across the Isthmus, but up
to the present time its construction has been impossible owing to the
fact that it was assumed that such a road would have to go around
the east end of Gatun Lake and that the resulting road would be over
100 miles in length. It is believed that no such length is necessary,
but that the present road from Panama to Gamboa can be extended
to Monte Lirio and thence can parallel the railroad across the lake,
using the railroad embankment over the critical points in the lake
where large fills would be necessary for the construction of an inde-
pendent roadbed. This has already been proposed by the military
and rejected by the canal authorities.
The need for this road is great enough so that the slight inconven-
ience to the Pananma Railroad ought to be accepted by the'War De-
partment and the use of the railroad embankment approved wher-
ever necessary to cross a sheet of water. The roadbed is built for
a double track and has a sufficient shoulder on which to support the
carriers for the electric transmission line. Without disturbing the
present roadbed, it is believed that sufficient room can be obtained
for a suitable highway merely by moving the transmission poles
nearer to the railway track and setting them at an angle.
The venereal situation, not only in the Army but among the em-
ployees of the canal, is far worse than it ought to be under existing
Panama City is a part of the Panaman Republic, and as such it
is impossible to do more than the local government will agree to.
In Colon, however, a different situation exists in that all the land.
in the city is owned by the Panama Railroad and that company
can dictate in its lea-ls any uses for which the property must: not
be used. Many hoores of prostitution undoubtedly will continue to
exist for a long time under the old leases made by the railroad, but
the use of the Panama Railroad property, which in effect is United
States Government property, for this purpose ought to be stopped
where possible and all future leases should have an explicit proviso
that the land in question can not be used for such purposes.
Detailed recommendations to accomplish these results are set forth
on pages 53-5. Appendix 1.
The health department of the Canal Zone consi-t, of the fol-
lowing three divisions: Hospital division, sanitation division, quar-
antine division.
The work of these divisions is done in a splendid manner and the
results obtained are beyond criticism, unless it be that the work is
too thoroughly done. This is exceedingly difficult to prove, inas-
much as a great deal of it is preventive work and .no one can say
whether a less amount of prevention would accomplish reasonable
results because what would be reasonably satisfactory is always a
matter of opinion.


There are, however, certain changes in organization and opera-
tion that. can be made which will greatly lessen the net cost to the
United States for the operation and maintenance of these activities.

The hospital division includes hospitals at the following places:
Ancon, Corozal (insane and helpless asylum), Colon. Santo Tomas,
and Palo Seco (leper asylum), and dispensaries at Ancon, Balboa,
Pedro Miguel, and Gatun.
The Anon Hospital, which is the principal hospital of the zone,
is one of the most perfect and well appointed hospitals that has come
within the observation of the commission. The hospital operating
cost during the calendar year 1919, was $492,366 and in the calendar
year 1920, $592,691. The revenue during the same two years was
$228.:307 and $348,776, respectively; the net cost to the Government
during the two years being $263,979 and $243,915, respectively, with-
out counting interest or depreciation.
The average number of patients treated in the hospital daily was
438 during 1919 and 427 during 1920; and during the same years
5,100 operations and 5,092 operations were performed in addition to
314 and 289 confinement cases, respectively. The average cost per
patient during the same years was $3.08 and $3.80, respectively. The
cost of food is approximately $1.05 for white patients and $0.53 for
colored patients. The increase in cost during the year 1920 over that
of 1919 is practically all due to increase in salaries and increase in
the cost of food supplies.
The salaries of the subordinates are based upon the wages of per-
sons similarly employed in the United States and are correspond-
ingly high. The salaries of the officials are not what they ought to
be compared with wages paid to artisans in the Canal Zone.
There are 21 doctors on duty in this hospital besides the superin-
ten(lent. as against 22 doctors in January, 1919, when the total force
employed was about 33 per cent larger than it now is. It is under-
stood that no medical officer of the Army or Navy is permitted to
operate in this or any other hospital of the Canal Zone. In this con-
nection, attention is called to the surprising fact that all the doctors
as well as the nurses are members of labor unions affiliated with the
American Federation of Labor.
The eight-hour law is applied to the nurses and hence the large
number of nurses, but even on this basis the number is excessive.
The cost of operation of this hospital has been compared with that
of other hospitals in various parts of the United States and it is
found that the Ancon Hospital compares very favorably in practi-
cally all eases.
The laboratory of the Ancon Hospital corresponds to the munici-
pal laboratory in a large city, and it is believed that. all chemi-
cal laboratory work of the zone should be concentrated in this
At the present time no charge is made either for consultations at
dispensaries of which there are an abnormally large number, or for
board for employees while in hospital. It is not believed that either
of these free services is justified or should be continued.


The commission believes that employees should be charged for
their subsistence while in hospitals; that the Panama Railroad Co.
should pay for the hospital and sanitary services rendered on ac-
count of its employees, and that there should be a reduction in per-
sonnel actually employed in the hospitals.
We are also strongly of the opinion that civilian doctors and
surgeons in the hospitals should be replaced by medical officers of
the Army and that serious consideration should be given to turning
over the hospitals to the Army Medical Corps for operation.
Detailed recommendations to accomplish the desired results are
given on pages 5-1--50, Appendix 1.


This division is in charge of a sanitation or health officer and its
duties consist in the collection and disposal of garbage, mosquito
prevention, rat extermination and street cleaning. The personnel
consists of 28 gold and 348 silver employees.
The work of this service is beyond criticism so far as the thorough-
ness and the quality of the work is concerned. We know of no city
in the United States that is as clean as Panama, nor where the flies
and mosquitoes are so scarce. The measure of this is the markets
which are unscreened and in which food is openly exposed for sale
and yet practically no flies exist. The alleys and yards are as clean
as the main streets. These same statements in general apply to the
towns of the zone. The city of Colon is generally very clean for
a central American town, but it does not compare with Panama, nor
are its alleys as clean as they ought to be.
The results of this service are shown in the percentages of sick, the
number of malarial cases being negligible when the character of the
surrounding country is considered. The work is preventive to a
very large degree, the activities being centered on eliminating the.
breeding places of the pests rather than on exterminating them after
By the terms of the treaty with Panama the supervision of the
sanitation of the cities of Colon and Panama is under the jurisdic-
tion of the health officer of the Canal Zone and each city contributes
a certain amount toward its sanitation. It is found, however, that of
a totil of $158,000 spent for prevention and sanitation $123,000 was
contributed by the United States; while of the street cleaning and
garbage collection costs, $81,300 was contributed by the United States,
making a total of $205,100 contributed by the United States out of
a total cost of $324,000.
While it would be presumptuous for laymen to advance their opin-
ion against that of a medical officer skilled in sanitary matters, it is
the opinion of the commission that. a condition of super-sanitation
exists as regards malaria and that greater precautions are now be-
ing taken than are necessary reasonably to protect the health of the
inhabitants of the Canal Zone.
The commission believes that a very considerable reduction can be
made in the sanitary activities without materially affecting the health
and welfare of the residents of the zone and with a material reduc-
tion in expenses.


Detailed recommendations to accomplish this result are given on
page 56, Appendix 1.

The quarantine service consists of the port quarantine officers and
quarantine stations at Cristobal and Balboa. There are 5 gold and
16 silver employees at Balboa and 6 gold and 15 silver employees at
Cristobal. The service at each place is the ordinary quarantine serv-
ice performed by the Public Health Service in the United States.
The number of ships examined by the quarantine officers during the
year was approximately 11 plus per day. This naturally is larger
than the number of ships transiting the canal, because it includes all
ships touching at either port.
In regard to the silver employees it is believed that the reductions
of force do not follow rapidly enough the reduction in activities.
No specific recommendation is made as to the size of force to be
employed, but it is believed that the quarantine division should be
turned over to the Public Health Service and operated under that
service as is the quarantine work in any port of the United States.
The nature of the accounting system and the general condition
observed in this department have been commented upon in an earlier
part.of this report. The recommendations that follow are discussed
fully in Appendix No. 2. In general terms, it may be stated that
the accounting department is not a modern business organization;
does not reflect the real financial condition and embraces too many
unrelated and illogical functions.
The accounting department consists of three main divisions, desig-
nated as the auditor's office," the "paymaster's office," and the
" collector's office." The auditor is the head of the accounting divi-
sion, but exercises only general supervision over the paymaster's and
collector's offices.
The combined force of the three divisions consists of 224 gold and
9 silver employees, with ari annual expense of approximately $556,-
000. This does not include the accounting department of the Wash-
ington office, with 25 employees at an annual expense of $44,000, nor
the New York office, with 28 employees, and an annual expense of
$55,800. This total outlay is out of all proportion to the volume of
business done, and even under the present methods is susceptible to
substantial reductions.
At present, the term auditor is largely a misnomer. He neither
audits in the general acceptance of the term, nor exercises complete
control over the accounting department. He has rio direct responsi-
bility for the actual handling of funds, this function being performed
by the collector and the paymaster, both of whom are, however, in a
measure his subordinates. He is the financial arbiter of the Panama.
Railroad, in so far as the availability of funds for its uses is concerned.
Similarly, he has practical direction of all business operations of the
canal organization, and while technically responsible to the governor,
as a matter of fact he dictates the policy of every business operation,
fixes prices, rates, service charges, allocations of labor, expense and


overhead. In brief, lie performs every function of an executive, but
without responsibility therefore. -.
The commission is convinced that there should be an entire re-
organization of the office of the auditor with a redistribution of the
duties between the auditor and a treasurer, and that a modern ac-
counting system should be installed which will permit of accurate
cost keeping in the several departments and divisions.
Detailed recommendations to accomplish these results are set forth
on pages 116 and 117, Appendix 2.
In volume of business the supply department ranks first of all
activities on the Canal Zone. All supplies of every kind and nature
are provided by it, and in addition thereto it directs the operations
of practically' every business industry other than the canal and
The commission believes that the supply department should be
transferred in its entirety to the Panama Railroad Co.; that the
officer in charge should immediately reduce the present large stocks
and thereafter operate the department on modern commercial lines,
consolidating his activities, keeping accurate records of uses and
scrutinizing carefully requisitions for additional materials. In this
connection it is believed that civilians should be encouraged to come
into the zone and establish stores for supplying the ordinary neces-
sities of life, and that the commissary should be confined to the sale
of staples or other articles not locally obtainable.
Detailed recommendations to accomplish these results are set forth
on pages 117-118. Appendix 2.

The commissary division is the most important division of the
supply department and operates the wholesale and retail stores of
the zone, and supplies the residents thereof and shipping with
practically every commodity entering into the requirements of living.
Operating under the general policy that seems to permeate the or-
ganization, its object primarily has been to promote the popularity
of. the canal and to provide the employees thereof with all the,
necessities and many of the luxuries of life without profit to itself.
Notwithstanding the fact that it has rendered a distinct service to
the residents of the zone, it. has, in the words of the governor, "as
many adverse critics as it has customers." In the opinion of the com-
mission most of these criticisms are unfounded and arise from the
unreasonable expectations of the employees for superservice.
This division operates a large number of manufacturing plants,
supplying various elements of food. At present purchases are made
by the use of coupon books, no sales being made for cash. The
coupon-book system is a source of great expense, and gives rise to
much criticism from the residents of Panama, it being claimed that
large quantities of supplies are bought and subsequently resold in
the adjoining cities of Panama and Colon.
The commission is of the opinion that the commissary should be
operated as a division of the supply department under an officer of


the Panama Railroad; that the system of cash payments should be
adopted; and that the stores and warehouses should be conducted
exactly as commercial enterprises, the manager of each store being
charged with responsibility for successful and profitable operation,
prices being fixed accordingly. We are also convinced that the
Government should take steps to dispose of many of the present
activities of this division, such as the cattle indlustiry, the hog farm,
and the dairy farm.
Detailed recommendations to accomplish these results are set forth
on pages 119 and 121, Appendix 2.
There are a number of minor operations and activities of the
supply department which came to the attention of the commission
regarding which it makes specific recommendations, but which are
not of sufficient importance to discuss in detail at this place.
Detailed recommendations in regard thereto are set forth on pages
122 and 123, Appendix 2.
The subsistence division of the supply department with a personneI
of 1 superintendent, 1 hotel inspector, 21 gold and 217 silver em-
ployees, operates the restaurants throulmhout the zone, of which there
are 11. In addition thereto, the Hotel Tivoli at Ancon, and the
Washington at Cristobal, with 17 gold and 169 silver employees, are
operated by this division.
It is found that, due to the fact that no capital investment is ta ken
into consideration, and that only nominal depreciation charges have
been set up, and no provision made for replacements, that every meal
served at these restaurants and hotels is at an actual loss to the
Government. It is believed that this is an unjustifiable expenditure
of public funds, and that it should be immediately discontinued.
The charges for meals obtaining in these restaurants are in I)rac-
tically all cases lower than that obtaining in the restaurants of the
United States of much lower grade. The character of service ren-
dered and products sold are excellent in every case.
Figures were not available showing the actual total investment in
these restaurants, but it was learned that the Hotel Tivoli represefl ts
a cash investment of over $400,000, while the Hotel Washington rep-
resents a capital investment of approximately $1,0000000. The prices
charged to the traveling public for rooms at these hotels are lower
than equal accommodations can be secured for elsewhere or in the
United 'States, and in addition thereto, Government employees and
members of the Army and Navy are granted a rate of approximately
40 per cent less than the public rate.
The commission believes that certain of these restaurants should be
closed; that those that are continued and the Hotel Tivoli should be
operated on a strictly commercial basis with equal charges to all
classes of patrons and at prices sufficient to insure profitable opera-
tion. The commission believes the Hotel Washington should be
leased for private operation.
Detailed recommendations to accomplish these results are set forth
on pages 122 to 125, Appendix 2.


The power .system of The Panama Canal con-sists of one hydro-
electric and one steam-generating station and six substations, all
interconnected with overhead high-tension transmission lines. The
total capital investment in the generating and distributing facilities
on June 30, 1921, was $6,361,104.59.
During the fiscal year ending June 30,1921, the combined generator
output of both plants was 71,603,830 kilowatt hours. Of this total,
99 per cent was obtained from the hydroelectric station and1 1 per
cent from tle Miraflores steam station.
The hydroelectric installation and the transmission system
throughout are the best equipped and the most permanent form of
construction. Under reasonable care and intelligent operation, it
may be depended upon to give the highest character of service pos-
sible to obtain, and from the standpoint of continuous output is far
more deperndlable than any steam equipment can ever be expected
to be.
During certain periods of the year, for the conservation of water
for lock purposes, a certain steam stand-by generating capacity would
seem to be essential. The present steam station, however, is of anti-
quated design and equipment, and will, in the natural course of
ev\enis, have to be replaced within two years at the outside.
At the present. time the Miraflores steam plant is kept in practi-
cally continuous operation. A few boilers are kept :banked at a
slightly reduced steam pressure, so that in the event of an emergency
load coming on, the generators can be put in full operation in the
minimum o:f time. The commission can see no necessity for this
constant precaution, as it is admitted by the canal authorities that
any interruption that might involve even the entire power supply of
the zone for a period as long as 30 minutes would result in no ill
effect, with the one exception of the possible flooding of one chamber
of the Miraflores locks.
During the last fiscal year there were only four interruptions in
the service of the hydro-electric station, the longest being 6Q minutes
and the minimum '2.1 minutes.
With reference to the possible flooding of one chamber of the Mira-
flores locks, llue to the loss in control of the elevation of the water
surface of Miraflores Lake, it has been ascertained that a cheap type
of gasoline wrecking pump would be adequate to meet this emer-
It. was found that 3i1 per cent of the total output of power is con-
sumed for lighting and cooking, while 70 per cent is used for power
purposes. No charge is made for power furnished for lighting and
cooking and there is, immediately apparent, the grossest extrava-
gance in the use of current for these purposes.
Insufficient consideration has been given to the regulation of the
power load throughout the zone, with the result of an excessive
number of peaks in the power demand.
The commission is of the opinion that the auxiliary steam generat-
ing plant. should be closed during most of the year and that addi-
tional economies can be effected by reductions in the operating force
and by installing a dispatcher of electrical power to regulate the
load to the various consumers. We are also of the opinion that a


reasonalile charge should be made for current used by employees for
lighting and cooking, and that there should be a revision in the
chl;i res for use of telephones.
Detailed recommendations to accomplish these results are set forth
on pilgcs 125 to 127, Appendix 2.

The function of this bureau is to provide recreation and entertain-
ment for residents of the zone, including a considerable number of
service men of the Army and Navy. It maintains and operates 10
clubhouses, 9 playgrounds, 18 tennis courts, 5 baseball fields. 2 cricket
fields, 1 athletic field, 1 swimming pool, 10 motion-picture halls, and
5 bathing beaches.
The appraised value of clubhouses, buildings, and playgrounds,
exclusive of equipment other than soda fountains, is $290,444.81.
No records were available of the value of other equipment.
The organization of this bureau consists of 68 gold and 129 silver
employees, at an annual pay-roll cost of $183,822.
A nominal fee is charged for the use of billiard and pool tables,
bowling alleys, etc., and for certain of the entertainment, such as
moving pictures.
The accounting methods are such that it is difficult, if not im-
possible, to ascertain the exact financial status of the bureau. The
actual operations for the past fiscal year, which, however, is nothing
more than a record of receipts and expenditures, without account of
capital invested, depreciation, or provision for replacement of either
structures or equipment, would seem to indicate an excess of ex-
penditures over receipts of $25,481. If to this be added certain ap-
propriations not appearing in the operating records, amounting to
$205,000, we have a net cost to the Government last year for account
of playgrounds and clubhouses of $230,000, with interest on approxi-
mately $300,000 of invested capital yet to be added.
Notwithstanding the fact that 80 per cent of the business done
by the clubhouses is in the afternoon and evening, the clubs are
operated at full complement from 7 a. m. until midnight.
The commission is convinced that the services of this bureau may
properly be somewhat curtailed, thereby effecting considerable econ-
omy in cost of operation and that the entire bureau should be put
on a self-sustaining basis with charges for articles and entertain-
ment furnished and for other privileges sufficient to insure this
Detailed recommendations to accomplish these results are set forth
on page 127, Appendix 2.
This bureau has the function of sorting and filing correspondence
passing through the administration headquarters, except that of
the acicounting d epartent, which is handled by that department
itself. It consists of 32 gold and 27 silver employees, with an annual
pay roll of 4$3.,579.92. The bureau also indexes and files general
records, maps, drawings, etc., in charge of mail, supervises the mes-
senger service and the Canal Zone free circulating library system.


Although it was urged that this concentrations of files was desir-
able and necessary, it is Ielieved that with the exception of maps,
drawings, and similar construction data, the present system leads
only to duplication of worrk and unnecessary expense, and should be
discontinued, the functions being distributed among the several
Detailed recommendations are made on page 12s, Appendix 2.
This bureau keeps records of transfers, promotions, reductions,
and terminations, applications for living quarters, leaves of absence,
issues orders for transportation, and performs other similar functions
for the entire gold personnel of the canal, and for silver employees
receiving colpl)ensation in excess of $80 per month, or $0.40 per hour.
The organization consists of 13 gold employees, at an annual cost
of $33,372.
This bureau apparently is performing at additional cost duties
properly belonging to the various departments and divisions, and
in the opinion of the commission should be discontinued and its func-
tions distributed to the several divisions.
Detailed recommendations are found on page 128, Appendix 2.
This bureau has charge of -the preparation of requisitions and
property invoices covering transfers of property and equipment from
one department to another, inventories property, and segregates the
charges therefore. Under the present canal organization it.performs
a necessary and useful function. The organization consists of 14
gold employees, at an annual cost of $31,908. Should the recom-
mendation for the transfer of the supply department to the juris-
diction of the Panama Railroad be approved, this-bureau will auto-
matically pass out of existence. In the event that said recommenda-
tion is not approved, it is believed that the personnel of the bureau
is susceptible of a reduction of 50 per cent without loss of effective-
ness or efficiency (p. 128, Appendix 2).
This bureau is the general publicity and vital statistical bureau of
the canal. It prepares statements and reports covering every ac-
tivity on the zone, compiles annual reports for the departments,
prepares advertising matter, including articles for magazines and
newspaper press of the world, and-is in fact the work of highly
trained specialists. The organization consists of eight gold em-
ployees, at an annual cost. of $20,628. None of these employees ap-
pear to be overpaid, and this organization is performing a service of
great value to the Government.
Should the recommendation that the publication of the Canal Rec-
ord be discontinued be approved, it is possible that the services of
one man might, be dispensed with (p. 128, Appendix 2).
This office was conducted during the fiscal year ending June 30,
1921, at a total cost of $319,987. The organization consists of a pur-


chasing department, an accounting department. and an administra-
tive department consisting of a total of 132 employees.
It is recognized that in the earlier days when much material was
heing forwarded' for construction purposes the functions of the
Washington office were highly important. It is believed, however,
that in view of the small amount of construction work contemplated,
and of other recommendations made in this report, such as a revision
of the accounting department, and the transfer of the purchasing
department to New York, there will be little occasion for the main-
tenance of so large a force in the Washington office.
It seems to the commission that this office should be reduced to that
of a sort of liaison headquarters between the canal and the Secretary
of War, and that all other functions should be transferred or dis-
Detailed recomnendlations appear on page 129, Appendix 2.
The very large number of employees and the great amount of the
annual pay roll led to a careful consideration of the lock forces to
see if they could be reduced. At present they are divided into two
shifts of eight hours each, and the first obvious suggestion was to see
if it was practicable to operate the locks and properly accommodate
traffic on one 8-hour shift, the crews working either continuously
or with a swing of, say, three hours interposed at sometime during the
8-hour period. One shift, if practicable, might save in pay at
least $200,000 a year, although the estimate of the canal authorities
was about $101,000.
This question was discussed at length with the governor, with
the superintendent of the marine division, and finally with the acting
engineer of maintenance and operation. These officials, and also the
captain of the port of Balboa, accumulated much data bearing on the
matter, and the consensus of opinion, in which the commission agrees,
was that it is impracticable to operate the locks with one 8-hour shift,
even with a swing or split, unless grave chances be taken of serious
delay to traffic through the canal if more than seven ships bound north
and eight ships bound south present themselves for passage on any
one day, and such delay to traffic would ultimately probably result in
a serious loss of tolls to the canal.
A new system of dispatching, however, which has been under con-
sideration for some time by the canal authorities is shortly to be put
into operation, and it is believed will make possible considerable
The lock force is somewhat overstaffed, and after a careful study it
is believed that considerable reduction can be made with no loss-of
Detailed recommendations appear on page 112, Appendix 3.
It was found that generally all of the dredging division equipment
in actual use is in good condition and well maintained, and this would
apply to that held in reserve. The'excellent organization of the
dredging division and the need of keeping sufficient equipment ready
for immediate use is instanced by the slide at the east barge repair


station that occurred about 3 p. m., July 14. This slide was reported
to the superintendent of the dredging division at about 3.45 p. m.,
and at 5.15 p. m.-the large dipper Paraiso was actually working on
its removal from canal prism, and the work of removal was so effi-
ciently carried on that the passage of the battleships Oklahoma,
Neiadla, and I'iscolkin, on July 17, was not delayed. Except for
the suction dredge C'uelne'a, which should be transferred to the Engi-
neer Department, United States Army, and dredge No. 83, which
should be rented, it is not believed that the equipment is in excess of
reasonable needs.
Considerable study is needed in the matter of salaries of employees
of this division, for some are out of coordination with wages for
similar employment in the United States.
Detailed recommendations are made on pages 112-113, Appendix 3.
The functions of the marine division consist of the maritime ad-
ministration of the ports of Cristobal and Balboa, the control of the
salvage section, of the board of local inspectors and steam vessels, of
the board of admeasurement, which deals with the measurement of
ships using the canal to determine the amount of canal tolls to be paid
by them, the supervision of harbor craft owned by the canal, and the
control of the lighthouse establishment.
The scheme of organization appears good, the officers in control
from a nautical standpoint are most competent, and, generally speak-
ing, the personnel efficient. The floating equipment is in good con-
dition and is well manned. However, some reductions in the per-
sonnel employed are practicable at the present time because of the
diminished use of the floating equipment incident to the falling off
in shipping activities.
A thorough study made of the operation of the floating equipment
resulted in the conclusion that certain of the equipment should be
disposed of. The commission is of the opinion that the ratings of
the tug officers should be revised and certain other economies effected
in operating personnel. We also believe that a reasonable pilotage
fee should be charged vessels transiting the canal, and that the pilot-
ing should not. be turned over to the proposed pilots' association.
Detailed recommendations to accomplish these results are set forth
on pages 113. 11.. Appendix 3.
The mechanical division operates the Balboa shops and dry dock,
and the Cristobal shops and dry dock. It does commercial and naval
work, performs all the repairs for the Panama Railroad, and much
for the steamship company. It also performs mechanical work for
practically all the divisions of the canal, and manufactures material
which is turned into stores. The total investment in these plants
and dry docks is $8.364.000. The pay roll for June showed 676 gold
employees and 1,093 silver employees, with a monthly pay roll of
For the fiscal year ending June 30, 1920, the gross revenue pro-
duced by the mechanical division is reported at $7,552,106. The
volume of business for the past fiscal year has not yet been reported,


but is less than the previous year. Operating statements submitted
for the nine months ending April 1, 1921, show a total deficit for the
division's operations of $56,138, without any allowance for interest
on the capital investment of $8,354,000. If usual fixed charges at
5 per cent on the investment are added, it would be necessary to
increase the above deficit by the amount of $417,000.
As a commercial operating proposition, therefore, the mechanical
division is a serious burden to the Government and presents for deter-
mination a question of policy.
The commission regards the continued operation of these shops and
dry docks of the mechanical division as auxiliary naval activities to
be unjustified by anything that we have found in legislation. Every-
thing that we have found appears to regard them as commercial
auxiliaries to the canal. We are of the opinion that the shops and
dry docks should be operated entirely as commercial agencies until
Congress shall otherwise indicate and appropriate therefore. and that
certain of the shops should be closed and large reductions made in
olera t ing personnel.
Detailed recommendations appear on pages 115, 117, Appendix 3.
It was found that there has been considerable criticism by masters,
mates, pilots, and marine engineers as to the form of organization
of the board of local inspectors in the steamboat-inspection service. present constituted, the board consists of the captain of the
port of Cristobal, the captain of the port at Balboa, the naval officer
detailed as supervisor of harbor craft, and the inspector of hulls and
It will be observed that under this organization, the captain of
the port of either Balboa or Cristobal might be called upon. as has
actually been the fact, to sit as a member of the board of inspectors
in a case in which an accident has occurred to a vessel that has been
operating under orders from the same person acting as captain of
the port.
It is believed that this steamboat-inspection service should be
turned over to the Department of Commerce. In event there is legal
difficulty involved in accomplishing this transfer, or pending the
transfer, if approved, certain changes should be made in the present
Detailed recommendations appear on pages 117, 118, Appendix 3.
The meteorological and hydrographic section has charge of the
installation and maintenance of all meteorological, hydrographic,
and seismological equipment; the compiling and summation of obser-
vational and automatic data relative to the same; and the prepara-
tion and furnishing of reports based on such data.
It is believed that under present conditions considerable of the
work now being carried on by this section can be discontinued with-
out inconvenience or loss to the Government, and the personnel con-
siderably reduced.
Detailed recommendations appear on pages 118, 119, Appendix 3.


The Panama Railroad was built and operated for a period of 50
years as a successful commercial enterprise, earning dividends that
ranged from 4 per cent to 26 per cent per annum. In the last five
years before the United States acquired the property the railroad
handled an average of 375,000 tons of freight per annum, compared
with 250,000 tons handled in 1920. The net earnings of the railroad
and steamship company during this period ran from $750,000 to
$1,000,000 per annum. When the railroad was relocated and rebuilt
by the Isthmian Canal Commission, first-class modern standards of
railroad construction were used, resulting in a complete and first-
class railroad not exceeded anywhere in the Tropics. The old track
gauge of 5 feet was maintained in the relocation, ample depth of
first-class gravel .ballast is found throughout, and the entire main
line is protected by automatic, three-position signals. In a word,
every detail is of the best. Mention is made of the previous earnings
and history of the property for comparative purposes with its un-
fortunate operating and financial condition to-day. The physical
condition of the property is here mentioned to show that the railroad
to-day should be operated and maintained at a minimum cost.
While the railroad was built and operated for purely commercial
purposes prior to our treaty with the Republic of Panama, it has,
since the construction of the canal and its opening to commerce in
1915, become an important adjunct to the canal itself. The future
policy of the railroad must, therefore, be controlled to some extent
by the canal policy and military necessities.
It has been found, however, that to-day the railroad and its out-
side operations are carrying a larger personnel than would be neces-
sary for purely commercial operation of the railroad. It now has
approximately twice as many employees as are necessary to efficient
The Panama Railroad Co. is an incorporated company, and al-
though the Government is the sole stockholder, we do not believe
that its treasury should, in the future, be used for other than purely
railroad purposes. Considering the mileage involved, the capital
account of the railroad company seems high, but in view of the cost
of relocation and rebuilding in accordance with the very best stand-
ards, the capitalization is actually not excessive, and by reason of
the excellent construction, future maintenance expenses will be com-
paratively light.
The operating ratio of expenses to revenues for 1919 was 91.4 per
cent; for 1920, 99.1 per cent for nine months ending March 31, 1921,
109 per cent; and estimated for the year ending June 30, 1921, 125 per
cent. The ever increasing operating ratio ending in the excessive
ratio now existing shows that no effort has been made to reduce the
operating expenses to conform to reduced traffic.
The company enjoys high freight tariff rates which have recently
been increased. The average receipts per ton-mile are now $0.096;
the average passenger receipts per mile $0.033. These are reflected
in the gross earnings, which amount to $42,000 per mile. With
proper operation and management, this income is ample to return a
reasonable profit on net operation. Highly paid gold employees are


being used in many positions which could be filled equally well by
native labor at much lower rates of pay, arid in all departments there
is a surplus of personnel.
The power and equipment is being maintained by the mechanical
division of the canal, and the railroad company has no immediate
jurisdiction or responsibility therefore. Even the roundhouses and
engine crews are under the mechanical division jurisdiction. The
high cost of maintenance of equipment is probably due in part to
this cause.
The freight train service is run in an uneconomical manner, and
not in a:curdalnte with the principles of American railroad oper-
ation. Some crews make no more than 50 miles per day and accom-
plish it in from three to four hours. These crews are paid on a
monthly basis without regard to service performed or mileage made.
There is no traffic department such as usually exists on even the
smallest railroads all over the world. Rates are made by the auditor
of The Panama Canal, and claims for loss and damage are settled
by him. There is no concerted or well-directed effort to solicit and
build up the traffic that the railroad now needs.
Under its original concessions the company owns valuable real
estate, some of which is in the business centers of Panama and Colon.
This real estate is leased at nominal rentals only, and the income
therefrom is susceptible of great increase when the old leases mature
within the next few years. The real estate is carried as an asset
in the balance sheet at but slightly over $1,000,000, whereas its
present estimated value is $13,000,000.. We are confident that the
property can be made to realize a fair return on a new valuation
approximating this figure. It is believed that some of the property
not necessary for railroad purposes in Panama City should be sold,
thereby obtaining much neQded funds.
The harbor terminals which have previously been revenue pro-
ducers are showing a deficit for the year 1921. Economies can be
effected, however, sufficient to wipe out this deficit in future years
of operation.
The coaling operations represent a capitalization of about $7,-
000,000, of which about $1,000,000 only is carried in the capital
account of the Panama Railroad Co. The coaling plants have been
revenue producers, and will probably show a profit for 1921. The
plants are heavily manned, however, and are run in an expensive
manner. If the force is not materially reduced and placed upon a
one eight-hour per day shift, it is feared that deficits will shortly
occur. At the time of writing there were about 225,000 tons of coal
on hand, equivalent to seven months' supply at present rate of use.
If the one collier which is at present in operation between Norfolk
and the Isthmus were laid up until the supply of coal is "it in half
better results would be reflected. The coal operations are purely
commercial, and if they can not be made to meet operating expenses
and fixed charges they should be leased or sold.
The commission is of the opinion that the Panama Railroad should
be thoroughly reorganized to conform to standard railroad practices
in the United States and should henceforth confine its operations to
recognized railroad functions. A number of business men of wide
experience should be placed on the board of directors and a competent


General manager should be employed. Its force should be largely
reduced, and in many positions colored labor should replace white.
The maintenance of equipment, at present performed by the me-
chanical division, should be turned over to the railroad, and all equip-
ment not actually needed should be sold or scrapped. All outside
operations such as the harbor terminals and coaling plants should
be operated so as to insure an adequate return on the investment.
The commission feels that the present method of railroad opera-
tion is one of the greatest, sources of loss to the Government, and
estimates that if the new methods recommended are put into effect
a saving of about. $1,120,000 per annum can be made.
Detailed recommendations to accomplish these results are set forth
on pages Sl-87, Alppendix 4.
The Panama Steamlship Co.'s operations started in 1893, and may
be regarded as the marine department of the Panama Railroad.
Until the purchase of the Panama Railroad by the United States Gov-
ernment the operations of the steamship company were financially
successful and served an important commercial trade between New
York, Colon, and Pacific coast poI.-. During the period of con-
struction of the canal the commercial operations were subordinated,
of course, to the necessities of the Government, the line giving pref-
erence to the handling of construction materials and American em-
ployees going to or from the Canal Zone.
For the purposes of analysis the operations of the company from
1900 to 1921 may be divided into three periods, to wit: The five years
prior to the beginning of the construction of The Panama Canal, in
which the steamship company was engaged solely in commercial
business; second, the period of construction of The Panama Canal;
and third, the five years since the opening of the canal.
During the last period above-mentioned it may be assumed that
the steamship line had returned to commercial operations, although
it. is believed that the handling of Panama Canal employees has been
given too much weight in the policy of the operation of the steam-
ships. During this period also, the Panama Co., as well as all other
steamship companies, profited by the abnormal conditions due to the
war. Similarly in the past year the Panama Steamship Co. has met
the same adverse conditions experienced throughout the marine
world. It would have experienced no difficulty in meeting these
adverse conditions if the surplus they had previously earned was
intact and cash resources were available.
It is believed that the Panama Steamship line, like other steam-
ship companies, niust meet the new conditions that point to low
freight rates and comparatively high operating expenses for at least
two years to come. Some economies will be effected through the re-
adjustment of the pay of all classes of steamship employees, and in
decreased cost of fuel, supplies, and administration expenses. Not-
withstanding, wages will be higher than in the prewar period, and
all of the economies will not wipe out the operating deficit for 1922.
The company at present is experiencing difficulty in obtaining pier
space at New York, and is now paying large rentals for such space


as it is using. If relief from the present pier situation can not be
secured through the influence of the War Department, it alone is
sufficient reason for the abandonment-of the steamship company's
operations as here after recommended.
So far as the handling of freight on the piers, crews, and straight
seamanship expenses are concerned, we are of the opinion that the
company is being handled as efficiently and economically as labor
conditions will permit.
This company is constantly called upon to carry official delegations
to and from the Canal Zone and West Indian points, and to trans-
port employees of the Government at less than actual 'cost of trans-
At the present time, the company is facing an operating deficit for
the year ending June 30, 1921, of about $700,000, and with the fixed
charges at 4 per cent the income deficit becomes $887,000. The
management forecasts that for the year 1922 it will be able approxi-
mately to break even and that for 1923 the operating revenue will be
1 between $350,000 and $-100,000. With this forecast we can not agree,
and are of the opinion that the year 1922 will show an operating
deficit of possibly $350,000 and that if all suggested economies and re-
ductions are made in the year 1923 it is possible that the operating
revenue will equal the expenses.
The above forecasts are all predicted upon increasing the tonnage
carried from commercial soiurcei From a broad economic point of
view, it is manifest that it is not to the best public interest to have a
Government owned and operated steamship line in competition with
privately owned American steamship lines. The commission is con-
vinced that, from a point of view of governmental policy, as well as
from a financial and commercial standpoint, the operation of the
Panama Railroad Steamshlip Line should be discontinued. The com-
mission realizes that there are reasons advanced for maintainino- this
line which have had a predominating influence up to the present time.
Some of these reasons are the prompt and regular transportation of
supplies to the Isthmus, the transportation of canal employees when
on leave, and to a certain extent the stabilization of rates charged
to American custnmers between the United States and Latin-Ameri-
can countries. The commission feels that these reasons no longer
exist since ample private commercial facilities now operate between
the United States and the Isthmus, and because the Shipping Board
is the agency through which the United States handles its shipping
matters and rates. In case it is decided to continue the line, the
commission is certain that this decision must be made in thl face of
an almost certain continued financial loss. This decision must -also
contemplate thel continuance of the steamship line in commercial
1, siness, without which it can not possibly survive.
With reference to the alleged stabilizing of rates through the
operation of the Panama Railroad Steamship Line, it is believed that
in this, as in other commercial affairs, the inexorable law of supply
and demand will apply, and if excessive freight rates are charged by
existing steamship lines for service to and from South American
ports, fresh competition will be introduced and rates quickly made


After giving careful consideration to the questions involved the
commission is convinced that the steamship line of the Panama rail-
road should e liquidated. Its fleet is ob,,solete, its operations are
being conducted at great loss, and it can hope to survive only by
aggressively and successfully competing with privately owned ship-
ping. In the event the administration elects to continue the steam-
ship line. certain large economies are possible which it is believed will
cut the present operating deficit in half for the next year.
Detailed recommendations to accomplish these results are set forth
on pages 88. S!, Applendix 4.
The foregoing recommendations have been made by the commis-
sion after thorough study and long deliberation. We approached
the investigation with the deliberate intention of considering each
activity as though we were going to be charged personally with the
conduct of that division under the recommendations that we would
make, and with the expressed decision that under no circumstances
would we recommend a change simply in the spirit of criticism or
with the idea that we had been sent to Panama to effect changes.
Our fixed opinion is that the canal administration has never been
given a definite mission or what might be called a target at which
to aim. The conditions that we found are the results of the lack of
a definite policy or target and the outgrowth of many decisions taken
more or less without consideration of their effect upon future policy.
No definite policy of operation was ever set up independently of
the policy of construction, and therefore construction policies still
obtain in the period of operation. In other cases, it would appear
that decisions affecting the proper operation of the canal had been
subordinated to greater matters during the war, while in others it
appears as though the easiest solution had been taken in order to
settle the matter for the moment.
If the recommendations of the commission are adopted it is be-
lieved that the total annual saving to the Government will be about
$5,000,000. This saving does not all come from a reduction in oper-
atina cost. but is made up of a saving from that source and an in-
come derived from repayment to the Government for certain services
that, have heretofore been gratuitous. The commission firmly be-
lieves that its recommendations can be put into effect not only with-
out injuring the service of the canal in any way but with an actual
improvement in the service, and that the resulting cost of operation
will hereafter increase at ;i slower rate than the rate of increase in
the number of ships transiting the canal. It is also believed that if
the recommendations are adopted the returns to the Government will
increase year by year and that within a period of 10 or 15 years the
canal will return a fair income on the investment of the Federal
Government therein.
Respectfully submitted.
H. P. WILsoN,

Letter from the Governor of the Panama Canal to the Secretary
of War, making preliminary comments upon the Report of
the Special Panama Canal Commission.

Sq'fe,;t' ber 17, 1921.
The honorable, the SEC( I:I:TAr Y OF WAR,
Washington, D. C.
SIR: In this, my first comment on the report of the special com-
nmissiiin, I shall attempt brevity, as in the main report of the com-
mission, supplenmenting it later, if desired, in the manner of their
appendices, with each comment in more expanded form.
By way of pref:ae, I desire to record the fact that the visit of the
commission has already been of great benefit to the administration,
and there are recommnendantions in this report not brought to- my
attention during their visit which also will be of benefit: but there
are some of their relmnienilatiions in which I can niot concur. In
the preparation of this memorandum I can not cover the entire field.
but hope to touch on most of their recommendations which are of
major importance.

There are certain features of the canal, aside from itself, that
have been lar ely designed as military and naval features. The
most important of these are the big shops and dry dock at Balboa.
the two coaling plants, the cattle pastures and abattoir, and, to some
extent the oil supplies, stores, and commissaries. All of these are
nmure extensive than they would be if the canal were not a Govern-
ment owned and operated facility. It is entirely a misapprehension
to assume that these facilities were constructed without careful con-
sideraztion by responsible coinmittees of Congress under advice of
military and naval authorities aside from canal officials. or to
assume that their operating charges were fixed in ignorance of the
ordinary accounting practices. As a matter of fact, Governor
Goethals fixed the principle on which mechanical division account-
ing was established, on the sound theory that amortization and de-
preciation, charges on all the plant would deprive the shops of com-i
mercill business and throw a heavier charge on Govermnent for the
maintenance of a plant which fulfils three functions, as follows:
The necessary function of maintenance of canal and railroad
equipment ;-
The highly desirable function of a repair yard for commercial
The reserve function of a military and naval base.
The same principles which directed this decision apply to the
others and parallel c(ises, and it m;y be stated that annually sums


have been deposited in the Trea.sury from all of these and other
activities. *
If we were approaching this question as for a decision as to
whether these facilities should be installed, the matter might be
debatable. But a decision to scrap any or all of them as installed,
or to arbitrarily reduce them to a point whence they could not be
restored, for no other reason than that no part of their cost happens
to be charged off to national defense, or because an annual sum is
not transferred from Navy appropriations to the Panama Canal
appropriations, would be a Governmental policy against which I
must enter a strong protest.
I concur in the commission's doubts as to the possibility of arriv-
ing at a written down cost of the canal; and I have further doubts
as to the value of such a study even were it capable of accurate
solution. I should certainly object to any policy that would attempt
to make each detailed subdivision of activity self-supporting.
I am in accord with the basic idea of this recommendation, but
I believe the commission's view is much more radical than would
be safe. There is doubtless some point between their recommen-*
dations as I read them and our present system, to which this
plan can be safely carried, and I would favor undertaking a
gradual transfer. I confess myself hopeless of reaching any such
goal as they pro, bably contemplate. We have here a highly efficient
plant; we must have nationals to give a reasonable assurance of
operation in a national crisis. Many operators require consider-
able training even after apprenticeship and mastery of some craft
I would strongly recommend against any attempt to replace any
such men by aliens, Nor do I believe the adoption of such a policy,
except to a limited extent, would be wise. Our present excellent
force would become at once demoralized, and many of them would
leave us at the first available opportunity, and this would be the
case whether they were union men or not. If the commission's
recommendation in this matter be considered to cover the unim-
portant positions in the service, I concur.
The commission made cable recommendation to you on this matter
andl advised my concurrences. You may have noted that their recom-
mendation went mi-iiewhat further than the recommendation I had
made in April. It now goes slightly further than that Nwith which
I concurred. I believe water and light should be furnished approxi-
mately at cost. but even at this these c.harg-es may turn out to be
somewhat higher than would be fair to our employees. Since my
concurrence with their cable recommendation the Navy Yard sched-
ule has been announced and its reduction is somewhat greater than
I anticipated. Also, I have supplemented my approval by a sopa-
rate recommendation as to those officials whose compensation has not
risen in years. I am loath to recommend action which may eat into
our force rapidly through the operation of the law of supply and
demand after the present industrial depression has passed, and.l I do
not desire to be unfair to men who have given their best, who remain


the sur vi vorS of a long competition, and who have demonstrated. their
loyalty and efficiency even though at times subject to criticism for
improper union activities.
I am, however, able to concur in the commission's recommendation
subject to the changes as to water and light as I have indicated, and
subject to the recommendation as to officials elsewhere made', though
if I were to fix it myself I would return to a plan which would give
charges approximating those which would result from my original
I find myself practically in agreement with this, though it might
be clearer and I might be in disagreement if my attention were called
to the specific cases of high wages referred to. I believe we have a
good organization for assembling wage data, and in the 25 per cent
rule a good basis to adhere to, and in most cases the adjustments
have been made with more care and greater accuracy than in most
wage adjustments during the same period in the States.
I can not concur in this. Our leave privileges have been tested by
*time and in my opinion are not excessive for the white man in the
Tropics. And I am convinced that it is not unreasonable for our
employee to get, for himself and dependent members of his actual
family, transportation to and from his home land at approximately
With some of the tenets of union labor I am not in accord, and I
agree that our employees have not been as free of these practices as
I could have wished. At the same time, I do not believe they have
differed from American labor as a whole, and they have certainly de-
livered the return for what may possibly be designated as liberal
treat ent. and have done it with less industrial friction than else-
where. I know of no way to prevent an American citizen from be-
longing to an organized union if he so desires, nor of any practical
way to insure that we shall have any specified proportion of non-
union men in our employ. I believe that if our treatment of em-
ployees is fair it will be so recognized by them whether they are
union or nonunion (even though they may not admit it); that they
will hesitate to use the strike weapon, as a fair proportion of them
recognize the fact that a strike following administrative action that
is not unfair, may well bring a law or Exe-utiv:e order requiring em-
ployees to renounce the right to strike or to leave until their places
can be filled. But I do not believe the way to get this is along the
lines recommended by the commission, as I believe it would start off
under a handicap which I personally would not care to incur. It
shall be my. effort, while governor, to accord the employees a square
deal, so far as the law and available funds permit, dealing with
them openly, whether union or nonunion, making reasonable con-
cessions, and using the power of the office to force a square deal
where the men refuse to agree to it. If such a policy fails to avoid
labor troubles, which nobody wants to see, the power of public opin-
ion on a work like ours will be a tremendous asset, one which I am
not willing to discard by subscribing to any policy other than out-


I am in accord with the recommendation as to dealing with em-
ployees' committees, and agree that agreements limiting the use of
tropical labor should be considerably revised; but I can see nothing
of value in the Governor being prohibited from other such agree-
ments, as such agreements may be helpful to both sides.
We are now in a period of industrial depression. Even assumin-"
the policy as recommended by the commiss-ion to be entirely fair, its
adoption now would subject the Government to the criticism that it
*is a reactionary doctrine enforced at a time when labor is almost
powerless to retaliate. I should hesitate to do this, and I am also
desirous of avoiding the ch;irge of doing it, which would tend to set
back the final solution of the labor question everywhere-a long
process at best.
I can not agree with this. The Panama Railroad has been a useful
servant of the canal during construction, and was in addition a com-
mercial organization prior to the opening of the canal. Now its
main and almost sole function is that of an adjunct to the canal. As
such its Isthmian operation must be kept directly under the control
of the Governor. This can be done without interfering with possible
development of traffic, which is bound to be a slow matter.
This involves a definite change of policy but seems particularly
urgent at the present time as the only possible way out of an im-
pending distressing situation. I concur in so far as native labor is
involved. I am not yet prepared to recommend the broader opening
up referred to in the closing paragraph of the commission's recom-
I believe the commission's criticism of the auditor's functions are
based on misalpprehension, due principally to the fact that Mr.
Wilson arrived at the canal a week later than'the other members of
the commission and during his stay the auditor's office was excep-
tionally busy not. only with the allotments for the new fiscal year,
with the preparation of estimates for 1923, and with collection of
data for annual report, but also with the special work called for by
the'recently created Budget Bureau,
Panama Canal auditing differs from both governmental auditing
and business auditing and accounting, partaking of the nature of
both. It is difficult to mix two such different systems, and yet both
are required. We must comply with the laws and regulations de-
signed for the control of solely disbursing agencies, and yet handle
business operations involving receipts and disbursements and profit
and loss accounts. It required special legislation to establish the
present system, relieving us of much detailed reporting. The sys-
tem in vogue had the expert advice of an accountant, Mr. Francis
Oakey, in 1914, and it has been modified and changed only as ex-
perience and changing conditions advised it. If it is defective
(which I do not believe), it can be changed. But it is certain that
the commission's recommendations will not result in any economy,
rather the reverse; and I am convinced that the additional labor re-


quired after the separation from the auditor of some of his work
would not give returns commensurate with the expense, nor would
the Governor be able to as closely control operations as he now does
through centralization of practically all of this work under one head.
As to the criticism of the executive functions of the auditor, these
are of exactly the same nature as the criticisms that have been ad-
vanced against the new office of Director of the Budget, but. on a
smaller scale and with much less force, as the Governor is far more
able to give individual attention to protests from his division heads
than would be the President. The auditor has no executive func-
tions except in his own division. Many of his acts appear so, but
none of them are performed without either the written or oral ap-
proval of the Governor. There is bound to be a certain amount of
vexation on the part of other division heads (who. by the way. some-
times obtain the decision), but these are only signs of health, and
give proof of the fact that the control is where it belongs, in the
hands of the Governor.
I find myself unable to concur in any of these recommendations,
though the matter is one which may require additional study.


I can not concur in this recommendation. The Governor's pay is
fixed by law. Such an official, if secured from civil life, would have
to be paid more, an intolerable situation. The operation of the
canal is essentially a big engineering and business proposition. So
long as the system of the past is retained and a Governor and engi-
neer of maintenance are selected from the Corps of Engineers, the
solution will be satisfactory enough, as when both are present the
engineer of maintenance to a large extent is chief advisor and chief
coordinator on the Governor's staff. It was unfortunate that during
the visit of the commission the engineer of maintenance was present,
only a few days, a fact which prevented their seeing the adminis-
trative system operating as designed, and also prevented my giving
their work as much individual attention as it should have had.


We have in this recommendation a comment on an
fect in Government service. The statement is unassailable, yet a
change is probably impossible. The recommendation I have made
as to rental and other charges for officials may help a little, but it
ought to be apparent to anyone that authority of Congress for any
increase in pay of officials at the present time would be impossible,
and I myself would deem them unwise under our political system.


Efforts will be made along the lines suggested. but it. is not ex-
pected that much can be accomplished with available funds. Nor
have I much hope of any accomplishment along the lines of ap-
prenticeship in trades.


I am in general accord with this, jut. not as to all details. It may
be possible to make some changes, but the funds saved would l e
better applied in other civil government functions than in installing
the two-platoon system, this latter idea also apparently being the
view of the commission.
This recommendation if followed would strike a vital blow at
efficiency in Canal Zone Government. The canal has, largely through
its own experience in construction days, and with full cooperation
of responsible legislative committees, emerged with a government in
which, the President, being .responsible, has decided that, with the
single exception of the courts, everything is governed by the Secre-
tary of War, and through him by the Governor, who acts under
laws and executive orders. It can be demonstrated that the changes
herein recommended, while in some cases saving expense to the canal.
will in all cases greatly add to the expense to the United States. But
above- all they will vastly decrease efficiency in government and
service, and in particular will greatly hamper the one thing we are
mainly down here for, viz, the safe, expeditious, and satisfactory
handling of commerce between the two oceans. The Canal Zone,
above all other places in the world, is a government reservation with
one broad mission, viz. to serve the world's commerce expeditiously
and well, and to bend all governmental functions to this end along
practical and economical lines. This can only be hampered by
diffusion of responsibility; and I must recommend most strongly
that we do not revert to a policy which our experience has rightly
led us to discard, and to abandon a correct policy which we have
I can concur witl this recommendation..
Much of this has been done and is proceeding. (The report errs
in statement that former building division went to this division; it
went. to the quartermaster section of the supply department.) There
are, however, many recommendations'with which I can not concur,
at least without further study.
These matters have been fairly fully covered by .recent correspond-
ence. I can not agree with the commission that supply should be
left to individuals or corporations, for the principal reason that it
would not be done if it was. If the commi-sion were as familiar as
our officials are with Panaman character and with efforts of Ameri-
can firms to do business in this country, its members would appreciate
that service would be vastly inferior and more expensive, and there
would be instant and strong clamor for a return to our present sys-
tem. All of the questions, however, in this subhead of the report
only confirm my recommendations for revocation of the Taft Agree-
ment and entering into a new treaty.
As to direct action between the Governor and Panama this also
has been properly settled, and should stay settled. Since the com-


mission presented its report to you, we have had one instance in which
it worked and worked well, where the so-called proper action of the
State Department, was not getting anywhere. The Governor is
charg-ed with the responsibility of taking over police protection on
Palnamni soil when necessary for the protection or operation of the
canal. Is the Governor going to have to do this by cabling to the
State Department for a notice to be serveil, or even by asking the
Anerician Minister in Panama to deliver this notice (which would
not be State Department action unless the Minister were authorized
to do so) ? This certainly will not be effective in heading off riots
or revolutions, and will not be done while the undersigned holds any
such responsibility as Governor.
Most of these matters are matters that have been threshed out sev-
eral times, and the canal government has made so many concessions
to the military authorities in the interest of harmony that I am safe
in saying we have fulfilled-all the requirements of- cooperation. We
can not, however, expend funds appropriated for one purpose for
another, and we can not agree that the universal rule of right of way
for the ship shall be abrogated on a waterway of the supreme im-
portance of the canal. Aside from the military transportation there
is not now'any necessity for traffic crossing the canal that can not
be accommodated on the lock gates as they are. When this necessity
exists a means will be found, but it would be a great mistake to install
a bridge, at least until this land traffic has assumed such size as to
justify the cost and risk, which will be far in the future.
The question as to a roadway from Gatun to Gamboa can be taken
up when there is any reasonable probability of obtaining funds for
its construction. It may be desired as a military asset. The Panama
Canal does not need it, but would be entirely willing to use prisoners
on it.
There are some detailed recommendations here that may well be
made the subject of further inquiry.
I am not opposed to the recommendation to charge for dispensary
service except to employees, and have already recommended a
charge for subsistence, in hospital.
I am not in favor of dispensing with civilians and substituting
Army surgeons unless the time comes that we lose some of our present
excellent staff. The question of turning Ancon Hospital over to the
Army has been given serious consideration (every two or three
years). Its work for the Army now is about 10 per cent of its
work. The superintendent and assistant superintendent are officers of
the Army and probably will continue so, as is also the chief health
officer, who is responsible for general health conditions and should
certainly not be depri\ edl of control of one of his principal assets in
this work, as would be the case if Aiwcon Hospital were transferred
to the Army.
The serllring of full payment for -anitary work done for Panama
in the terminal cities is another question which may be taken up in
negotiating the new treaty. The canal has attempted to obtain more


equitable payments, but witliout. success. The alternative is to re-
quire Panama to do its own sanit:ition which, while agreeable to
Panama, would probably not produce necessary results, or if pro-
duced, would' result in much friction. The sanitation of the two
cities, besides, is worth something to the canal, though probably not
as much as the annual deficit. As to our own sanitary work, it may
6e said to be lessening annually, as more and more permanent drains
are completed. There have been economies introduced already, and
as time goes on there will be more.
I am unalterably opposed to the transfer of our quarantine service
to the Public Health Service. Cost would be greater, service far less
efficient through inherent difficulties of cooperation, and canal traffic
would be impeded.
This is touched on elsewhere except. as to the proposed consolida-
tion of the offices of paymaster and collector. This was given con-
sideration in formulating the Panama Canal Act. The proposal looks
Attractive as indicating a saving, but the saving would be small, prob-
ably $7,500 a year. This would be a small saving to effect for the
surrender of the additional safeguards thrown around the handling
of some $20,000,000 a year in each office by the separation of collect-
ing from disbursing functions. I am unable to concur in the pro-
posed change.
I am unable to concur in a separate auditing force for the railroad,
or to pay-roll preparation by each division, as making for expense
rather than for saving; nor can I concur in injecting capital cost and
depreciation charges in all cases, nor that any saving can be made or
greater accuracy commensurate with cost secured by setting up an
instrumentality to secure it in more detail.
The idea of transferring purchases, supply and storekeeping to
the Panama Railroad looks attractive, though it hardly agrees with
an earlier recommendation for divorce of activities. There is no
question but that official red tape handicaps efficient business and
The Panama Canal suffers exceptionally in this respect, and may
possibly suffer more as the supply service of the Budget Bureau
grows. I would emphatically favor this plan except that it doubtless
will require legislation which will be difficult to secure, while we
might much more easily obtain legislation which will relieve us of
some of our troubles under the existing system. Also I can foresee
endless complaints reaching our office through the Secretary of War,
backed by high officials of the Government service. There would be
complaints of not having goods considered-, of not being asked for
bids, charges of graft and incompetency. Before embarking on
this plan all higher officials (Governor, Secretary, and President)
should contemplate a continued resistance to all kinds of political
pressure for at least. two or three years until the system had proven
itself. With the necessary legislation and this resolution to give
it a fair trial, it would doubtless effect, considerable savings. Doubt-
less then -a time would come when some official were caught in


"gra ft." and the whole scheme would come back to the usual and
exceedingly hampering system now in use.
As to throwing the Zone open to private business, I am convinced
of the impracticability of this at the present time. Many questions
are involved, as will appear in the negotiation of the new treaty with
Steps have already been taken looking toward a reduction of
stocks, and toward stricter control along lines recommended. Four
months. however, is too short a period to cover.
Other recommendations should be given further study.
Tlhiee detailed recommendations are worthy of consideration and
study. I can not see how cash sales will lessen Panama's complaint.
This is a problem with which the canal has worked for years. There
is no solution that.has not some objections. I can but report, that
we are prepared to give the greatest weight to this recommendation,
in further consideration and study of a difficult problem.
As to transfer of activities (cattle, hog, and dairy) to private busi-
ness, this might be accomplished if desired, and economies might
thereby be effected. All of the businesses, however, are valuable
assets to the supply, and the dairy, though carried on at high costs,
is practically indispensable from the health viewpoint.
. I can not concur in many of the minor recommendations referred
to; in some I concur, and some have already been accomplished.
The basis for the main criticism here stands or falls with the rent
question. As soon as rent to gold employees is authorized, the service
at these places will carry corresponding charges. The principal ob-
jection against leasing the Hotel Washington is the desire to main-
tain at each terminus at least one first-class hotel under direct con-
trol. A lease of this plant to an individual would almost certainly
result in all sorts of criticism from many distinguished visitors.
Other minor recommendations are worthy of study; some few have
already been adopted.
The statement of the emergency use of the )team plant which is
floating on the power line is not quite acc.urate. The one most dan-
gerous place under power failure is at the lower lock at Miraflores,
but the danger is more than the mere flooding of the lower chamber.
When tide is high at Parific entrance water has to be passed from the
upper chamber past the lower chamber and wasted in order to avoid
flooding lower chamber When equalized. If the power were to fail
while these valves are open a heavy vessel might be set down on the
floor of the upper chamber before the valves could be closed by hand.
Such an incident is of course remote, but if it came it wolld be ex-
ceedingly expensive, and if it were to come while the opposite cham-
ber were under overhaul the canal would be closed for several days,
while the mere flooding of chamber would close the canal only a few


The output of the steam plant during the fiscal year just closed
was considerably less than 1 per cent of the total power, due to the
small number of interruptions in transmission. It is believed that,
in view of the fact that in a very few years a steam plant is zo(ing
to be necessary in the dry season for economizing water, and also as
the floating of a steam unit on the line gives the valuable insurance
referred to above, and also performs a valuable function as syn-
chronous condensers for power factor improvement and v\ltage
regulation, the present use of this plant should be continele and its
gradual rephicement effected, though it is quite possible that very
considerable economies in operation can be effected. Studies alone'
this line were started some months ago. It may also be that further
study will bring my views and those of the commission into closer
Other recommendations are worthy of further study, though I
must confess my doubts as to being able to furnish dependable
service with the full outs recommended.
The matters herein presented have been given study since the
visit of the commission, and one large clubhouse is being run on one
shift, as an experiment. The statement that 80 per cent of business
is done in afternoon and evening is inaccurate, even if the eleven
after noon hours are covered. The percentage as between the two
shifts (before and after 3 p. m.) are more nearly 40 and 60. The
commission may not have considered the fact that charges adjusted
as recommended might operate to decrease revenues in greater pro-
portion than expenses. or force the closing of the clubhouses, which
would be most unfortunate, as many employees would thereby be
forced into the surroundings of Panama and Colon, extremely unde-
sirable for many of them. However, the matter is well worthy of
study, but the changes should not be too precipitate.

The Panama Canal has learned by experience that a dissemination
of the duties as reconunended would not only greatly hamper the
transaction of the involved business operations of the canal and
railroad, but would add very greatly to the expense. I can not
concur in either of these recommendations.

This is worthy of study, but I doubt if much saving can be effected
should the bureau not be merged into a purchasing department as
elsewhere suggested.

Incidental to the words of commendation of this office, I venture
the mild suggestion that this is the one function of the canal organi-
zation with which the commission became extremely familiar, and
that it is possible that a similarly close study of other sections might
have eliminated some of the critical impressions formed.


As to The Panama Canal Record, I should vote most strongly
against its discontinuance. It performs an advertising function for
the canal which in my opinion is worth at least ten times its annual
cost-which has been reduced from $17,000 to about $11,000 since the
visit of the commission.

Tlie-e recommendations are dependent on others. There is no
doubt that economieC in the force of this office can be effected with
the decline of construction and purchasing duties which confront
us for the next two or three years. The matter is well worthy of
The new system of dispatching gives all promise of success and
will in all probability be adopted. It may, however, fail with the
increase of traffic that may come to us in a year or two. It will effect
considerable economies. Some economies may also be effected in
the supervisory force, but I have no hope of reaching all the cuts
suggested by Captain Fry.
.Efforts have been made to loan the dredge Culebra to the Engi-
neer Department, U.'S. Army, and if the operations of that Depart-
ment warrant it the dredge will be permanently transferred, and
hired back when required for our occasional work. We also
expect to lease a pipe-line dredge to Ecuadorian or Colombian in-
terests, and had started negotiations to that effect six months ago.
I might here again be pardoned for venturing another.mild sugges-
tion. The slide of July 14th, which occurred while the commission
was at the canal, was the only considerable emergency that con-
fronted canal operations during their stay. It was handled effi-
ciently, under their observation. (They are, however, slightly in
-error, as the big battleships passed on the 16th, not the 17th.) This
occurrence undoubtedly elided from their report a recommendation
to eliminate a stand-by tug for the dredging division. It is sug-
gested that other emergencies might have caused other elisions or
at least have iinpressed the commission more than is apparent with
the practical difficulties of conducting work so far from the nearest
port from which assistance may be obtained.
The Panama Canal, unfortunately, is not in a position to meet
anything but a reasonably permanent change in volume of business,
nor can it, as practically all other port works could do, place equip-
ment in reserve with a view to suddenly recommissioning it, or de-
pendl for any peak of its service on hire of tugs. What we have is
all there is, not only for our own service, but. for occasional service
to neighboring ports. Such a service as that of our marine divi-
sion can not at the present. time be self-sustaining except by charges
that would be criticized the world over as exorbitant. I can not con-
cur in all the reductions of equipment. recommended, though some of


the minor recommendations have already been accomplished. Other
recommendations are worthy of .consideration and are receiving
I must again here record my absolute negative against the recom-
mendation to transfer the Steamshiip Inspection Service to the simi-
lar service in the Department of Commerce, as this will but add ex-
pense and hamper service.
This division, in the fiscal year 192.1. perfoimned about $6,800,000
worth of work, of which over *2.600 ()O was performed for outside
agencies, $2,35(..)(.00 for the canal.- about $1,400,000 for the Panama
Railroad, and about $4i00,0!00 for other governmental agencies. Ex-
cept for the fact that overheads do not include amortization or de-
preciation charges (except in minor inst:-ices), the work was not
done at a loss.
The shops get some outside business, as indicated above. It is prac-
tically certain that much of this would be lost if our charges were to
be fixed to carry this overhead. Carrying no such charges they can
more than pay their way if the shipping world is busy. It is quite
true that this condition will be slow in returning and unfortunate
retrenclments may be necessary unless the shops can be given some
governmental work other than that of the canal. These retrench-
ments may involve the temporary closing down of some facilities for
repair of shipping, but I am positive that no far-seeing executive,
keeping the national value of this utility in mind, would be justified
n going to the extreme recommended by the commission.
The detailed recommendations are certainly worthy qf study,
and will be given consideration.
This recommendation is directly contrary to a recommendation
made under the caption Marine Division." It is worthy of study,
and is much better than the other recommendation. However, it
also contains the power of review by an outside agency, which would
add expense, increase possibilities of friction, and to no value what-
ever. It may be wise to separate the functions of hull and boiler
inspectors, and to constitute them as a local board. It certainly is
not as economical as the existing plan which, in my opinion, is fully
equal to our needs.
I do not believe it wise to curtail the activities of this section, to
the extent recommended. Some of the recommendations would re-
strict service to shipping, others would rob us of valuable meteoro-
logical data at. very smallI saving. Some of the recommendations,
however, are worthy of study.
I must enter a strong denial to the statement that the Panama
Railroad is carrying twice as many employees as are necessary for
efficient operation. This is not so now, nor wa- it so when the com-


mission was at the canal. I am also confident that the commission
will-not insist on this statement, unless they mean by it that the
railroad could do all its railroad business with half its employees,
regardless of its necessary service to The Panama Canal.
The mistake Mr. Molitor has made in his study of our conditions
is in comparing this railroad with roads in the States, in -a totally
different climate, and surrounded by totally different trade condi-
tions. The Panama Railroad was first a short transcontinental line
intended to serve world commerce by transfer of c;,aro and passer)-
gers from ship to ship. In those days no one would have thought of
subjecting it to study as a local line connecting Panama and Aspin-
wall. Later, while still performing this function, it became also a
most important adjunct to expedite the construction of the canal.
When the canal was opened it almost entirely lost its first t haracter
and became and always should be recognized as one of the divisions
of the canal. For the convenience of using its corporate character
it retains its business name and organizations, but it can not be
separated from the canal without increased expense and poorer.serv-
ice on both sides.
Some of the criticisms of our cost figures and of our service are
fair and steps have been taken changing many of them and are being
taken to correct others; in fact, many such changes had been made
before the commission arrived, though it is only fair to state that
they gave us much assistance, and their report will be valuable as
assistance in other changes.
I can not approve of modeling our practice on United States rail-
ioad practice, for the simple reason that there is no railroad in the
States at all comparable.
I can not approve of turning the railroad shops over to the railroad.
This would only result in further incapacitating our shops for com-
mercial business and would save nothing.
I can not approve of a separate railroad auditing, rate-fixing, and
claims force. This would save but little, if anything, and would
require some duplication of work.
I can not approve of an organization for developing traffic be-
yond that which we have. From the very nature of the case, ex-
cept for the field of developing a railroad haul across the Isthmus
at the expense of a water haul, such an organization would spend
$20 to secure $2 worth of revenue, of which $1 would come without
the expenditure.
Most of the services are good revenue producers, though some
of them have fallen off considerably in the business depression of
the past year. Reductions have been made to meet this depression,
but I have declined to absolutely cripple the force in the face of a
slow revival already indicated, and I believe this is a wise policy.
I can not concur in all the minor recommendations of the com-
mission, though some of them will doubtless emerge after further
There is but one valid reason for liquidating this line, as recom-
mended, and that is the policy of Government operation. There are
powerful private interests busy along this same line. This steam-


ship line has been one of the finest instrumentalities the United
States has had in assisting United-States shipping in its struggle
against foreign shipping. A decision to scrap our fleet would crown
with complete success this insidious foreign-controlled propaganda,
which has been participated in by some American lines, and to some
extent by the Shipping Board. If the United States flag is to go
off the seas, as it may well do under the restrictions imposed on
operation, this would be a good first step to take, but I desire to
go on record as opposed to it. Your attention is invited to Mr.
Rossbottom's recent testimony before the House Committee on Mer-
chant Marine and Fisheries (House bill 5348) for a full recital
of the various struggless of this line against these many agencies.
Your attention is also invited to the fact that during the Great
War, in spite of handicaps imposed by requisitioning of ships, this
line was the sole dependence of all the territory served by it, and
the rates were maintained in spite of tremendous rate advances the
world over.
The following are additional reasons for continuing these op-
This line is mainly an adjunct of the canal, and by the Gov-
ernor's control thereof he is given an agency to assist in efficient
operation that is most valuable, in fact well-nigh indispensable.
With an investment of over half a billion, with a dependent popu-
lation of 40,000 or so, 2,000 miles from our market, and with a
most important task of keeping the canal efficiently operated and
properly manned, it is not unreasonable to insist on the continued
operation of a line of supply. Rather should serious consideration
be given to throwing the business of troop supply to the Panamna
Railroad boats.
If these boats are removed, rates will certainly rise, the cost of
service will surely be greater than now, and within a year the entire
West Indian and South American trade with the United States will
be controlled by steamship lines of foreign registry. If it is proposed
to charge commercial rates to employees our service will greatly
suffer, as some valuable employees will doubtless leave, and others
"will be deterreil from taking necessary leave. If it is proposed to pay
part of employees' travel expense, the expense to the Government
will be that much more.
I can not concur in all the alternative recommendations as to op-
erating these ships, though some of them are worthy of our consider-
ation. Particularly must I dissent from the proposed denial of use
of the Balboa shops for overhaul, as this would be transferring an
operating difficulty from one agency to another and would doubtless
result in a net. loss to the Government, though possibly appearing as
a profit to the steamship line.
I have not had time to thoroughly analyze all detailed recommenda-
tions of the commission, nor to check the estimated saving of
$5,000,000 a nnu aly estimated by. the. commission, part of which would
take the form of increased receipts. But I can state it as my firm
conviction, backed up by several years' service at the canal in high
responsible positions, that the adoption of these recommendations


at once and in toto would ruin the canal. We would soon have a
halting. limping service, damage bills to an incalculable extent, a
very considerable traffic loss. a wholesale desertion of highly expert
employees, resulting in a disorganized service that could never be re-
stored to even a small fraction of its present high efficiency: also a
valuable strategic asset would be almost totally destroyed. The net
result would be an actual financial loss, as well as a great loss in na-
tional prest ige.
It is respectfully suggested that the Secretary take no action at
present on matters in which the Governor and the commission differ.
There has already been much accomplished, and more will follow
your approval of the points recommended by them in which I al-
ready concur, plus those in which I can agree after further study and
trial. The Secretary of War and the Governor are the two officials
most interested in effecting all possible reforms consistent with effi-
cient service and a correct national policy, as they are also the two
officials most concerned in checking any action that might result in
disorganization of the service. The commission's report is valuable
and will remain so, regardless of the extent to which its recommenda-
tions are followed. As clearly as I can see harm in a too hasty adop-
tion of some of these, can I see benefits that will accrue from a more
deliberate action, resulting in adoption of some (some gradually,
some tentatively, some possibly at a very early date), and in the re-
jection of others.
I would strongly recommend (and I believe the commission will
concur) that the Secretary take advantage of any possible oppor-
tunity to visit the canal. Many of your predecessors have done so
with great advantage to the public service. Such a visit would be
of inestimable value in determining your action along the lines most
advantageous to the United States as to any points on which the
Governor and the commission should remain in disagreement.
The following is tentatively suggested as a plan for solution of the
matters pending:
When you receive this report the undersigned will be available in
Washinoton. Let the Governor and the commission get together (or
if their scattered and important duties prevent them getting together,
I can meet with each of them in turn, either in Washington or New
York). We can submit, a joint report which will embrace two classes
(or at most three) of proposals:
(a) Changes in which we are in concurrence.
(b) Recommendations in which we are in agreement that further
study is advisable. And possibly
(c) Recommendations in which we are in disagreement without
any reasonable chance of concurrence.
The matter will thus come before you with the issues clear-cut, and
enable you to arrive at the necessary decisions without unnecessary
loss of your valuable time.
Respect illy,
JAY J. MORROW, 0o,'o'ernor.


Letter from the Secretary of War to the Governor of The
Panama Canal, approving certain recommendations based
upon the report of the Special Panama Canal Commission.

Washington, October 18, 19?1.
Washington,' D. C.
SIR: The following recommendations submitted by yourself and the
chairman of the Special Panama Canal Commission, acting as a com-
mittee under my instructions of the 21st ultimo, are approved, with
amendments as indicated, and you are directed to take the necessary
steps to carry them into effect as promptly as conditions warrant:
[Pages 7-8 of RePlort.]
A careful study shall be made of the cost of the canal, in order
to establish, if possible, a capitalization to determine a fair com-
mercial value that should be fixed for the canal and its various
allied activities. When this has been arrived at, the actual cost of
the canal and its activities be written down to this figure, which
"should thereafter be used in the operation and official reports as
capital account upon which returns and expenditures should be
justified. Having arrived at this figure, it will be subdivided and
an allocation be made to each auxiliary activity under the canal
administration, and thereafter the suam allotted to each of these
activities shall be the one that must be used in justifying the con-
tinued existence of the activity concerned; but in case the operations
show a loss, the Governor may present to the Secretary of War a
statement of reasons why the activity might be longer continued.
There are certain activities, such as sanitation, hospitalization, fire *
and police protection, and other similar governmental functions,
which obviously are not activities from which commercial returns can
be expected. These should be attached to canal operations proper
and the cost thereof borne by canal operations. By capitalizing
the canal and its various subdivisions as therein recommended, it
is believed that many desirable results will obtain, for thereafter not
only the canal as a whole but each of its auxiliary activities will be
given a measure by which the efficiency of its operations should be
[P'ays 9-10 of Rep'ort.]
Your recommendation as to tropical labor is not approved. Trop-
ical labor will not be employed in responsible positions which in-
volve any element of the national defense, or where such employees
might imperil the proper operation of the canal.


I find myself in accord, however, with the policy of extending the
employment of tropical labor in other capacities than those gener-
alized above, and also with the policy of educating and developing
such native labor as may be suitable for low-grade work.
No changes in employment should be entered upon )precipitately,
but should be adopted gradually so as to determine by experience to
what extent tropical labor can be properly used, to what extent it, is
a. proper and real economy, and what. limitations should be -placed
thereon so as to avoid any injustice to American labor now or here-
after employed on the Canal Zone.
[Pages 10-11 of Report.]

On and after January 1, 1922, rental will be charged for quarters
occupied in all cases where such quarters do not form a part of the
basic wage, and the rent shall be determined as follows: First, write
down the book value of the quarters to its present depreciated value
of $3,435,076, and upon this value charge 5 per cent for amortization
and interest. Add to that amount the cost of repairs due to the
ordinary wear and tear, plus the cost of garbage disposal and other
services necessary from a sanitary point of view, and prorate the re-
sulting amounts among the houses according to the amount of floor
space, including porches, in each set of quarters. The result will be
the rental for housekeeping quarters. For bachelor quarters and
nonhousekeeping quarters add certain fixed sums for janitor service,
light and water, as set forth more in detail in Appendix No. 1, page
40, of Special Commission's Report.
It is further recommended that the repairs to furniture. repairs
to stoves, and care of grounds, at the cost of the Government, be en-
tirely stopped, and they shall be maintained by the individual oc-
cupying the premises when used and turned over at the expiration of
his service in as good condition as when received, barring wear and
A charge shall be set up for water used by the employees at. a
* properly derived cost, and proportioned to cover the amount of
water used. Meters will not be used on account of their cost.
Electrical service for light and heat will be chn urged for in marr ied
quarters according to consumption. All such quarters will be
metered, the charge to be at a properly derived cost.
[Page 11 of Report.]
The rates of pay fixed by law, of not to exceed 25 per cent the rates
paid for similar service in the Government service in the United
States, will be used for both canal and railroad employees. There are
certain rates (notably bases fixed for railroad employees, for building
trade, rates, and for rates derived from the latter) which are now
too high, and for which a new rate should be fixed. In fixing these
rates, whether from Government rates or from commercial rates


when no Gov\ernment employment of similar nature can be con-
veniently found, consideration shoiHd be given to the fact that in
some sections of the United States wliere the rate is higher than in
other places, the hourly rate is fixed on such a basis as to give a
suitable wage per 'ear. taking into consideration the fact that in-
clement weatlter may close down employment during portions of
the year. Similarly, pi)roper consideration should be given to a suit-
able differentiation I between maintenance employees and construction
employees at the c': al. these terms being used to differentiate those
holding reas.nmably, permanent positions from those whose employ-
ment may termin:i.te witli cessation of a construction job.
The bases llupon Nwhich wages are determined shall be gone over
carefully and be readIjusted along the lines above indicated.
[ Patyc 1.-13 of Report.]

Hereafter no agreement will be entered into which canA not be
terminated at any time upon thirty days' notice by the Governor
when in his judgment considered advisable.
The so-called union rate in the United States shall not necessarily
be followed in fixing the wage scales, but the wage scale, when not
fixed on a Government rate, shall be derived from the wage actually
paid for similar services in various representative parts of the United
States, whether it be a union rate or a non-union, rate.
The employees, whether union or non-union, shall be dealt with
openly, through committees or representatives composed of em-
ployees, whether representatives of labor organizations or not.
All agreements limiting the use of tropical labor be abrogated, and
the use of such labor shall be determined by the Governor as else-
where directed.
It is the intent to give the employees the right to lay all proper
claims or complaints before the Governor or the agencies he may
constitute for wage or complaints adjustments, through their repre-
sentatives, and to accord to all employees fair and equitable treat-
ment, whether they be members or non-members of a labor organi-
[Page 13 of Report.]
The Canal Zone, and especially that part along the railroad and
lake, will be thrown open to agriculture immediately, and agricul-
ture and truck gardening be encouraged in every way.
The Panama Railroad will be the agency through which the
natives' houses are constructed, and the necessary land cleared to
start this agriculture.
The open pasture lands near the railway stations will be the first
lands opened up.
A farm demonstration bureau will be established to help farmers,
both as to what they can best raise and as to how they can obtain
the best results.



[P'ages .14-15 of Report.]

Among the recommendations of the commission the following
It is further ri,.ii.i-iailnlh that there 1e set up in the Canal AdIministrat in.
an executive office' i- whose time shall be devoted to the det;!iledl .xImriniitioni alnd
coordination of the various activities of which the (anal i-';1 lizatiol is made
up. This executive officer should be a man \\hi, in comllii-erci;l life, would ior-
respond with a c:iinrl'l m1;Iv;iar of a private corplolatin. He should relieve
the Governor of all executive details, and for this purpose we recoumneln
the services of a man with wide experience in large business ilndlertakings 'e
It is believed impracticable to obtain an exe .itivt officer from
civil life at a salary properly coordinated with that of the Governor.
The engineer of maintenance, however, forms an excellent substitute.
and can perforni the functions of an executive officer if relieved of
direct charge of various divisions under his control: and this is

[Page 15 of Report.]

The Governor shall be allowed from Panama Railroad funds for
entertainment expenses so much as may be necessary up to $4,000
per annum, provided that this use of Panama Railroad funds be
authorized by Congress.


[App. No. 1 of Report.]

The number of colored teachers shall be increased by eight.
The colored schools shall be enlarged at Paraiso, Red Tank and
Cristobal (or Mount Hope) by two rooms, at Gatun by three, and
at Empire by one.
The principals of the various colored schools shall be paid $960 a
year and the other teachers from $750 for the first year to $900
after three years' service.
The silver schools should be extended to ten months, inasmuch as
the children are accustomed to going to school practically the entire
Additional buildings needed should be set aside from existing
structures, or if necessary they should be immediately constructed.
The preceding five directions should be made effective from funds
which may be made available from economies effe,.ted in other ac-
tivities under the civil government.
No fee shall be charged for children of employees residing out-
side of the Canal Zone.
A manual-training school shall be established in connection with
a system of apprenticeship in the useful trades.


[App. No. 1 of Report.]
Steps should be taken to turn over the duties of the Canal Zone
Marshal to the Chief of Police, securing, if possible, a change in the
[App. No. 1 of Report.]
The subdivisions of the northern and southern districts shall be
reduced in number to three each.
The wages of the foreman and superintendents shall be thor-
oughly gone into and fixed in relation to the class of work on which
these men are now employed and not upon what their former work
was or what their capacity may be.
. After present commitments in the cities of Panama and Colon
are fulfilled, municipal work for these cities shall be undertaken
only when funds are actually set aside and available therefore.
The number of subforemen should be reduced.
After the completion of the work on the Santo Tomas Hospital
no additional work of this kind shall be undertaken except when
funds are actually set aside and made available therefore.
[App. No. 1 of Report.]
The canal administration is directeil not to handle matters (ex-
cepting those arising from the exercise of the Governor's executive
functions) directly with the Panaman Government, but that other
matters shall be dealt with through the regular channels of the State
The Panaman Government should be informed that the canal
authorities are within their rights under- the treaty in purchasing
and selling supplies of whatever nature to the employees of the
Canal Zone.
The present. practice of allowing representatives of local firms
to go on board ships and solicit business should be kept entirely
free and unhampered and it should be encouraged rather than im-
peded by unnecessary rules and regulations.
The Panaman Government should be advised that in the opinion
of the Department the property in the cities of Panama and Colon is
properly held" by the railroad and that there has been no violation
of the Treaty in connection with the improvements made thereon.
The Panamlan Government should be advised that the Department
can not concur in their contention in reference to the designation of
land that may be later required for fortification or other purposes,
or in their claim that the-United States should pay the Republic of
Panama for surrendering its sovereign rights in any lands hereafter
The question presented as to the exemption from Panaman taxes
of certain property of the Panama Railroad shall be referred to the
proper legal advisers of the-Secretary of War for determination and
draft of a suitable answer.


The sum of money now due the United States for the construction
of public works in the cities of Pananm and Colon shall Ie divided in
two equal parts and deducted from the next two annual payments
due to the Panain:n Republic and thereafter any debts incurred shall
be deducted from the next succeeding ann al payments, provided this
can be done satisfactorily under the Treaty obligations.
Mr. C. P. Fairman should be informe-il that the Secretary of"War
will take no action in the matter of title to lands such as he recom-
mends and that he or his clients have recourse to the District Court
if they feel that justice has not been done them.
[.- llp. No. 1 of Ri port.]
The Governor of the canal shall be directed: to have his legal ad-
viser examine into the leases under which the Panama Railroad Co.
has rented land in the city of Colon and wherever possible by any
just interpretation of the law the lessee shall be informed that the
property can not be uiis,, for houses of prostitution under penalty
of losing his lease, and he hall further be instructed that all future
leases shall contain a definite proviso under which the leases can be
immediately canceled in case the property is used for such purpose.
[App. No. 1 of Report.]
The use of the railroad embankment for this purpose shall be
authorized, provided it can he done without widening the embank-
ment. The cost of moving the transmission poles and the construc-
tion of the road to be borne by the military authorities, said authority
to give the right to adapt the bascule bridge near Monte Lirio so
as to carry the highway traffic and the canal administration shall
cooperate in this work and assist it by the free use of prisoners for
the construction of the road wherever practic:able.
[App. No. 1 of Report.]
Hospafnl Dirision.-Employees shall be charged for sulisistence
at a rate to cover the actuall cost of food served. These cost figures
should be adjusted every three months.
The Pananma Railroad should pay for the hospital and sanitary
services furnished to its employees on the same basis that any other
corporation would be obliged to pay; said charges to Ie the same,
however, as those to other employees of the canal, paid by the rail-
road and collected by it from its employees.
Approximately 10 per cent of all the silver employees in the hos-
pitals should be dispensed with, to be released where they can best
be spared.
Anfliftiot Di;,-xi;oi.-The amounts extended for sanitation in the
Zone shall be Ireduc(ed as much as possible consistent with manitain-
ing the necessa ry sanitary precautions requisite for the preservation
of the health of American employees in tropical service.


The cost to the United States for sanitation in the cities of Colon
and Panama should .not exceed the amounts provided by the cities
themselves; provided that not to exceed half the expense for sanita-
tion in areas in Pianaa or Colon occupied exclusively by United
States employees may be borne by the United States.
Householders in Panaman and Canal territory shall be obliged
to crean and keep clean their own property under penalty of having
it (lone for them at their expense by our sanitary squads, and of
paying a fine for repeated offenses.
[.lip. No. 2 of Report.]

In the system of accounting there shall be provision made for a
'complete and independent showing by each separate business activity
throughout the Zone, and invested capital (subject to the revised
set-up value as elsewhere directed) shall be set up as a direct charge
thereto, the accounts showing the actual results of each unit.
The Coupon Accounting Section shall be abolished in connection
with establishing a system of cash purchases.


[App. No. 2 of Report.]
A careful inventory and appraisement, should be made of all stocks
in warehouses.
All materials shall be in accordance with standard specifications
wherever possible, and in case the purchase of non-standard material
or supplies is authorized, such specifications will be prepared in the
department where material or supplies are required, but such special
non-standard materials will only be purchased upon the approval of
the Governor.
Encouragement shall be given to civilians to come into the Zone
and establish stores to supply the ordinary necessities of life and
the commissaries shall confine themselves thereafter to the sale of
staples or other articles not locally obtainable; this should be started
first in the silver communities and extended as rapidly as conditions
The price of ice to employees on. the Canal Zone shall be fixed at

The commissary division henceforth shall be operated as a separate
and independent unit of the general establishment under the direction
and management of the proposed Vice President of Panama Rail-
road in Charge of Purchases and Supplies.
An immediate inventory should be taken of all merchandise in stock
to the end that current and salable goods only be retained, charging
same at a figure representing present fair market value, the balance
to be written off as a loss against prior operations less immediate
salvage value.
All stores shall be operated on a strictly cash basis.


A system of cards shall be established in lieu of the present coupon
system, and monthly purchases shall be limited to approximately
75 per cent of the monthly compensation received, one card to serve
both identification and limit purposes.
[App. No. 2 of Report.]
The Ancon planing mill gold employees shall be replaced by silver
The operation and maintenance of all motor transportation of the
Zone shall be turned over to the supply department and consolidated
with the work now being performed by that department; the man-
ager of that department shall be authorized to employ silver labor
wherever it can be used to advantage.
Free transportation of employees to and from their work shall be
discontinued, except in special cases where quarters are not available
reasonably contiguous to the work, and the issuance of free passes
for the use of motor vehicles shall be reduced to the lowest possible
point consistent with the actual needs of the service.
The green house at Ancon shall be either leased to private parties
or discontinued and liquidated.
[App. No. 2 of Report.]
The restaurants shall be treated in the same manner as the com-
missary stores, and each plant shall be immediately inventoried, a
capital charge 'representing the fair market value of the equipment
shall be set up; the management shall be instructed to add 5 per cent
on account of such capital investment to the cost of its operation, the
manager to report directly to the Vice President of the Railroad in
Charge of Purchases and Supplies, each unit to be operated sepa-
rately and distinctly from the other units; the purchase of materials
from the commissary and elsewhere shall be at a price including
percentage of profit allocated by the Governor to the various com-
missaries, and the charges for meals served shall cover all costs of
operation of the restaurants, including interest and amortization at
the rate of 5 per cent on the capital charge, full maintenance of the
quarters occupied, depreciation and obsolescence, plus such rate of
profit as may be authorized by the Governor to be set aside as a fund
for replacement and renewals and for such other purposes as the
Vice President in Charge of Purchases and Supplies may direct; if
it is found under the new plan of operation that any particular
restaurant does not at least fully sustain itself, it should after six
months' trial be discontinued, and its stocks and equipment be liqui-
dated; provided. unless as previously directed, there exist sufficient
reasons for its continuing.
[-.1,p. No. 2 of Report.].
Instructions shall be issued to begin at once the liquidation of this
hotel. either by lease or by sale, to private capital, or failing in that,
by salvaging the same.



S[App. No. 8 of Report.]

The operation of shipping on the time schedule described shall be
tried out impartially and ultimately be put in force with such changes
Sor improvements as may be found desirable.


[App. No. 3 of Report.]

The very fine seagoing suction dredge Culebra shall be sold or
transferred to the Engineer Department, U. S. Army, with arrange-
ments to rent back at intervals.
Provided suitable guarantees can be obtained from any of the
Central or South American countries that may need its services, a
pipe-line suction dredge should be rented with its crew on such terms
as the Governor of the canal may deem just and proper.


One of the tug boats in service at Balboa shall, for the present, be
laid up and its crew with the exception of the ship keepers fur-
The services of supply boat No. 1, located at Cristobal, shall be
dispensed with for the time being, and her crew, with the exception
of a ship keeper, be furloughed.
The services of supply boat No. 2, located-at Balboa, shall be
dispensed with for the time being and her crew, with the exception of
a'ship keeper, be furloughed.
The complement of the tug Gorgona shall be reduced by one master
and one engineer.
Unless it proves to be impossible to recruit competent men as mates
and assistant engineers, the personnel of the Favorite shall be reor-
ganized on the following basis:
1 master.
1 1st mate.
1 2d mate.
S 1 chief engineer.
1 1st assistant engineer.
1 2d assistant engineer.
All of these men to have the necessary U. S. Steamboat-Inspection
Service licenses that would justify their charge of a vessel of the
Favorite's type and dimensions; in addition 'to these officers, there
shall be retained a boatswain and radio operator, and the following
silver roll crew:
1 carpenter.
5 oilers.
5 firemen.
4 coal passers.
1 messman or waiter for crew.
S seamen.
1 steward.
1 cook.
1 messman or waiter for officers.
3 quartermasters.


The superintendent of the marine division shall be directed to deter-
mine after conference with the captains of the ports of Cristobal and
Balboa what reductions can be made for the present in the launch
ind( sailor gangs at their respective ports.
[App. No. 3 of Rrport.]
The attention of the Governor and through him the attention of
the superintendent of the mechanical division shall be called to the
need of immediate reductions of the mechanical force, particularly
with reference to the foremen and leading men, in order that such
ratings shall closely conform to the volume of work actually in hand.
There shall be turned over to the mechanical division the repair
and maintenance of all electric apparatus connected with its own
shops and dry docks.
All employees, regardless of grade, except those in main office of
division, shall be required to wear identification tags or badges while
at work.

[App. No. 3 of Report.]
All orders, circulars, rules of the road, plans of situations, and the
like, governing the operation of craft, shall be printed in Spanish
as well as in English.

[App. No. 4 of Report.]
Maintenance of Way and Strtutures.-All steam railroad tracks
on the Isthmus shall be transferred to the railroad company and
be included in its assets, operation and maintenance.
The tracks put in and owned by the Army, for its own convenience,
shall be regarded as industrial tracks, built by the Army for its own
convenience, but operated by the railroad, the actual cost of main-
tenance if done by the railroad to be billed against the Army.
About 35 miles of sidetracks shall be taken up and salvaged.
One of the bridge and building gangs shall be abolished, the re-
maining one to be placed in boarding cars if advisable to avoid un-
necessary expense.
Section forces shall be immediately furnished with track motor
Maintenance of Eqipni,;,int.-Many cars of all types in storage at
the present time, as well as all other stored equipment which requires
other than the lightest repairs, shall immediately be scrapped and
salvaged, and equipment in use, reaching the stage of major repairs,
shall be retired and scrapped, until the number of cars required for
service has been reached.
The motor car shop shall be turned over to the supply department.
Trni.nspo,'tation.-All the railroad employees on the Isthmus shall
be rated in accordance with the decisions of the United States Rail-
way Labor Board. In case that average earnings of a class in the


United States he used in determinatition of a base rate, additional
earnings made for overtime shall not be used in the base to any
greater extent than overtime is made on the Isthmus.
There shall be a revision of the passenger service, three trains to be
run in each direction each day, and the Saturday and Sunday night
passenger service shall be discontinued.
The amount of passenger equipment being used shall be reduced,
and the parlor cars carried only on steamer trains.
A revised freight train schedule, substantially as outlined, shall
be installed.
Station. of the silver men at the station at Colon,
six of the silver men at the station at Panama, and six of the silver
men employed by the local freight agent at Panama should be dis-
pensed with.
A rearrangement of the relief service shall be effected enabling the
railroad to discontinue one of the relief agents.
The helper employed at Balboa Heights shall also act as porter,
thereby eliminating one job.
The crossing watchman at Pedro Miguel shall be taken off, and the
crossing protected for trains by one of the two station helpers.
In rearranging the rates for station employees, difference shall
be made in the wages paid agents at the larger and more important
Trafi.e.-Whatever action necessary to authorize the establish-
ment of a warehouse for goods in transit in Cristobal shall be taken.
The indiscriminate use of the pass privilege should be called to
the attention of the administration with a view of placing a reason-
able restriction upon the issuance of passes, and the practice of giving
canal employees and their families monthly passes should be modified.
Real Estate.-The realty in the cities of Colon and Panama shall
be carefully appraised and the values thus obtained set up in the
assets of the railroad company, at the same time writing off the
items carried in capital account, such as farm industries, cattle lands,
Pacific Mail and Royal Mail properties, and other items which call
for readjustment.
An effort should be made to dispose of any property in Panama
City (not of use or probable use to the railroad) to which clear title
can be given.
Coaliqg Operiiaton.s.-The wet storage of coal for the Navy shall be
permanently discontinued.
Serious consideration should be given to the practicability of the
operation of the Cristobal and Balboa Plants on an eight-hour per
day basis, and making the price of coal the same at Balboa as at
Cristobal, northbound ships being permitted to transit the canal and
.coal at the northern terminus (Cristobal), and, likewise, southbound
ships proceeding through the canal and coaling at the Pacific ter-
minus (Balboa).
Other Opertio.ii:.--The stables should be contracted or leased out
to individuals from whom sufficient rental can be realized to relieve
the management of the Railroad completely from stable operations.
The baggage transfer operated in Colon and Panama should be
dispensed with as soon as a responsible transfer company undertakes
business in either or both of these cities.


[App. No. 4 of Report.]

The steamers Allianca and Adt iace should be immediately retired
from service and sold for whatever amount they will bring.
Immediate steps should be taken through the proper authorities of
the War Department to obtain Melief from the excessive rentals now
being paid for pier space at Hoboken and for the acquisition of
adequate pier space in the harbor.

In the above directions it is understood that the reductions directed
refer to reductions from conditions existing at the dates referred to
in the report of the Special Panama Canal Commission.
To carry these directions into effect will require in some cases an
Executive order issued by the President. You will have the neces-
sary orders prepared as promptly as possible and forwarded to me
for submission to the President.
As to the other matters in the commission's report, you are granted
the additional time that you request in order to make a further study
of the subjects. Submit your report in these other matters at the
earliest practicable date.
Secretary of IVar.

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