Speech Transcript:

 This message is the first of several which I shall send to Congress
during the interval between the opening of its regular session and
its adjournment for the Christmas holidays. The amount of information
to be communicated as to the operations of the Government, the number
of important subjects calling for comment by the Executive, and the
transmission to Congress of exhaustive reports of special
commissions, make it impossible to include in one message of a
reasonable length a discussion of the topics that ought to be brought
to the attention of the National Legislature at its first regular
session.

THE ANTI-TRUST LAW-THE SUPREME COURT DECISIONS.

In May last the Supreme Court handed down decisions in the suits in
equity brought by the United States to enjoin the further maintenance
of the Standard Oil Trust and of the American Tobacco Trust, and to
secure their dissolution. The decisions are epoch-making and serve to
advise the business world authoritatively of the scope and operation
of the anti-trust act of 1890. The decisions do not depart in any
substantial way from the previous decisions of the court in
construing and applying this important statute, but they clarify
those decisions by further defining the already admitted exceptions
to the literal construction of the act. By the decrees, they furnish
a useful precedent as to the proper method of dealing with the
capital and property of illegal trusts. These decisions suggest the
need and wisdom of additional or supplemental legislation to make it
easier for the entire business community to square with the rule of
action and legality thus finally established and to preserve the
benefit, freedom, and spur of reasonable competition without loss of
real efficiency or progress.

NO CHANGE IN THE RULE OF DECISION-MERELY IN ITS FORM OF EXPRESSION.

The statute in its first section declares to be illegal "every
contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several
States or with foreign nations," and in the second, declares guilty
of a misdemeanor "every person who shall monopolize or attempt to
monopolize or combine or conspire with any other person to monopolize
any part of the trade or commerce of the several States or with
foreign nations."

In two early cases, where the statute was invoked to enjoin a
transportation rate agreement between interstate railroad companies,
it was held that it was no defense to show that the agreement as to
rates complained of was reasonable at common law, because it was said
that the statute was directed against all contracts and combinations
in restraint of trade whether reasonable at common law or not. It was
plain from the record, however, that the contracts complained of in
those cases would not have been deemed reasonable at common law. In
subsequent cases the court said that the statute should be given a
reasonable construction and refused to include within its inhibition,
certain contractual restraints of trade which it denominated as
incidental or as indirect.

These cases of restraint of trade that the court excepted from the
operation of the statute were instances which, at common law, would
have been called reasonable. In the Standard Oil and Tobacco cases,
therefore, the court merely adopted the tests of the common law, and
in defining exceptions to the literal application of the statute,
only substituted for the test of being incidental or indirect, that
of being reasonable, and this, without varying in the slightest the
actual scope and effect of the statute. In other words, all the cases
under the statute which have now been decided would have been decided
the same way if the court had originally accepted in its construction
the rule at common law.

It has been said that the court, by introducing into the construction
of the statute common-law distinctions, has emasculated it. This is
obviously untrue. By its judgment every contract and combination in
restraint of interstate trade made with the purpose or necessary
effect of controlling prices by stifling competition, or of
establishing in whole or in part a monopoly of such trade, is
condemned by the statute. The most extreme critics can not instance a
case that ought to be condemned under the statute which is not brought
within its terms as thus construed.

The suggestion is also made that the Supreme Court by its decision in
the last two cases has committed to the court the undefined and
unlimited discretion to determine whether a case of restraint of
trade is within the terms of the statute. This is wholly untrue. A
reasonable restraint of trade at common law is well understood and is
clearly defined. It does not rest in the discretion of the court. It
must be limited to accomplish the purpose of a lawful main contract
to which, in order that it shall be enforceable at all, it must be
incidental. If it exceed the needs of that contract, it is void.

The test of reasonableness was never applied by the court at common
law to contracts or combinations or conspiracies in restraint of
trade whose purpose was or whose necessary effect would be to stifle
competition, to control prices, or establish monopolies. The courts
never assumed power to say that such contracts or combinations or
conspiracies might be lawful if the parties to them were only
moderate in the use of the power thus secured and did not exact from
the public too great and exorbitant prices. It is true that many
theorists, and others engaged in business violating the statute, have
hoped that some such line could be drawn by courts; but no court of
authority has ever attempted it. Certainly there is nothing in the
decisions of the latest two cases from which such a dangerous theory
of judicial discretion in enforcing this statute can derive the
slightest sanction.

FORCE AND EFFECTIVENESS OF STATUTE A MATTER OF GROWTH.

We have been twenty-one years making this statute effective for the
purposes for which it was enacted. The Knight case was discouraging
and seemed to remit to the States the whole available power to attack
and suppress the evils of the trusts. Slowly, however, the error of
that judgment was corrected, and only in the last three or four years
has the heavy hand of the law been laid upon the great illegal
combinations that have exercised such an absolute dominion over many
of our industries. Criminal prosecutions have been brought and a
number are pending, but juries have felt averse to convicting for
jail sentences, and judges have been most reluctant to impose such
sentences on men of respectable standing in society whose offense has
been regarded as merely statutory. Still, as the offense becomes
better understood and the committing of it partakes more of studied
and deliberate defiance of the law, we can be confident that juries
will convict individuals and that jail sentences will be imposed.

THE REMEDY IN EQUITY BY DISSOLUTION.

In the Standard Oil case the Supreme and Circuit Courts found the
combination to be a monopoly of the interstate business of refining,
transporting, and marketing petroleum and its products, effected and
maintained through thirty-seven different corporations, the stock of
which was held by a New Jersey company. It in effect commanded the
dissolution of this combination, directed the transfer and pro rata
distribution by the New Jersey company of the stock held by it in the
thirty-seven corporations to and among its stockholders; and the
corporations and individual defendants were enjoined from conspiring
or combining to restore such monopoly; and all agreements between the
subsidiary corporations tending to produce or bring about further
violations of the act were enjoined.

In the Tobacco case, the court found that the individual defendants,
twenty-nine in number, had been engaged in a successful effort to
acquire complete dominion over the manufacture, sale, and
distribution of tobacco in this country and abroad, and that this had
been done by combinations made with a purpose and effect to stifle
competition, control prices, and establish a monopoly, not only in
the manufacture of tobacco, but also of tin-foil and licorice used in
its manufacture and of its products of cigars, cigarettes, and snuffs.
The tobacco suit presented a far more complicated and difficult case
than the Standard Oil suit for a decree which would effectuate the
will of the court and end the violation of the statute. There was
here no single holding company as in the case of the Standard Oil
Trust. The main company was the American Tobacco Company, a
manufacturing, selling, and holding company. The plan adopted to
destroy the combination and restore competition involved the
redivision of the capital and plants of the whole trust between some
of the companies constituting the trust and new companies organized
for the purposes of the decree and made parties to it, and numbering,
new and old, fourteen.

SITUATION AFTER READJUSTMENT.

The American Tobacco Company (old), readjusted capital, $92, 000,000;
the Liggett & Meyers Tobacco Company (new), capital, $67,000,000; the
P. Lorillard Company (new), capital, $47,000,000; and the R. J.
Reynolds Tobacco Company (old), capital, $7,525,000, are chiefly
engaged in the manufacture and sale of chewing and smoking tobacco
and cigars. The former one tinfoil company is divided into two, one
of $825,000 capital and the other of $400,000. The one snuff company
is divided into three companies, one with a capital Of $15,000,000,
another with a capital of $8,000,000, and a third with a capital of
$8,000,000. The licorice companies are two one with a capital Of
$5,758,300 and another with a capital of $200,000. There is, also,
the British-American Tobacco Company, a British corporation, doing
business abroad with a capital Of $26,000,000, the Porto Rican
Tobacco Company, with a capital of $1,800,000, and the corporation of
United Cigar Stores, with a capital of $9,000,000.

Under this arrangement, each of the different kinds of business will
be distributed between two or more companies with a division of the
prominent brands in the same tobacco products, so as to make
competition not only possible but necessary. Thus the smoking-tobacco
business of the country is divided so that the present independent
companies have 21-39 per cent, while the American Tobacco Company
will have 33-08 per cent, the Liggett & Meyers 20.05 per cent, the
Lorillard Company 22.82 per cent, and the Reynolds Company 2.66 per
cent. The stock of the other thirteen companies, both preferred and
common, has been taken from the defendant American Tobacco Company
and has been distributed among its stockholders. All covenants
restricting competition have been declared null and further
performance of them has been enjoined. The preferred stock of the
different companies has now been given voting power which was denied
it under the old organization. The ratio of the preferred stock to
the common was as 78 to 40. This constitutes a very decided change in
the character of the ownership and control of each company.

In the original suit there were twenty-nine defendants who were
charged with being the conspirators through whom the illegal
combination acquired and exercised its unlawful dominion. Under the
decree these defendants. will hold amounts of stock in the various
distributee companies ranging from 41 per cent as a maximum to 28.5
per cent as a minimum, except in the case of one small company, the
Porto Rican Tobacco Company, in which they will hold 45 per cent. The
twenty-nine individual defendants are enjoined for three years from
buying any stock except from each other, and the group is thus
prevented from extending its control during that period. All parties
to the suit, and the new companies who are made parties are enjoined
perpetually from in any way effecting any combination between any of
the companies in violation of the statute by way of resumption of the
old trust. Each of the fourteen companies is enjoined from acquiring
stock in any of the others. All these companies are enjoined from
having common directors or officers, or common buying or selling
agents, or common offices, or lending money to each other.

SIZE OF NEW COMPANIES.

Objection was made by certain independent tobacco companies that this
settlement was unjust because it left companies with very large
capital in active business, and that the settlement that would be
effective to put all on an equality would be a division of the
capital and plant of the trust into small fractions in amount more
nearly equal to that of each of the independent companies. This
contention results from a misunderstanding of the anti-trust law and
its purpose. It is not intended thereby to prevent the accumulation
of large capital in business enterprises in which such a combination
can secure reduced cost of production, sale, and distribution. It is
directed against such an aggregation of capital only when its purpose
is that of stifling competition, enhancing or controlling prices, and
establishing a monopoly. If we shall have by the decree defeated
these purposes and restored competition between the large units into
which the capital and plant have been divided, we shall have
accomplished the useful purpose of the statute.

CONFISCATION NOT THE PURPOSE OF THE STATUTE.

It is not the purpose of the statute to confiscate the property and
capital of the offending trusts. Methods of punishment by fine or
imprisonment of the individual offenders, by fine of the corporation
or by forfeiture of its goods in transportation, are provided, but
the proceeding in equity is a specific remedy to stop the operation
of the trust by injunction and prevent the future use of the plant
and capital in violation of the statute.

EFFECTIVENESS OF DECREE.

I venture to say that not in the history of American law has a decree
more effective for such a purpose been entered by a court than that
against the Tobacco Trust. As Circuit judge Noyes said in his
judgment approving the decree:

"The extent to which it has been necessary to tear apart this
combination and force it into new forms with the attendant burdens
ought to demonstrate that the Federal anti-trust statute is a drastic
statute which accomplishes effective results; which so long as it
stands on the statute books must be obeyed, and which can not be
disobeyed without incurring far-reaching penalties. And, on the other
hand, the successful reconstruction of this organization should teach
that the effect of enforcing this statute is not to destroy, but to
reconstruct; not to demolish, but to re-create in accordance with the
conditions which the Congress has declared shall exist among the
people of the United States."

COMMON STOCK OWNERSHIP.

It has been assumed that the present pro rata and common ownership in
all these companies by former stockholders of the trust would insure a
continuance of the same old single control of all the companies into
which the trust has by decree been disintegrated. This is erroneous
and is based upon the assumed inefficacy and innocuousness of
judicial injunctions. The companies are enjoined from cooperation or
combination; they have different managers, directors, purchasing and
sales agents. If all or many of the numerous stockholders, reaching
into the thousands, attempt to secure concerted action of the
companies with a view to the control of the market, their number is
so large that such an attempt could not well be concealed, and its
prime movers and all its participants would be at once subject to
contempt proceedings and imprisonment of a summary character. The
immediate result of the present situation will necessarily be
activity by all the companies under different managers, and then
competition must follow, or there will be activity by one company and
stagnation by another. Only a short time will inevitably lead to a
change in ownership of the stock, as all opportunity for continued
cooperation must disappear. Those critics who speak of this
disintegration in the trust as a mere change of garments have not
given consideration to the inevitable working of the decree and
understand little the personal danger of attempting to evade or set
at naught the solemn injunction of a court whose object is made plain
by the decree and whose inhibitions are set forth with a detail and
comprehensiveness.

VOLUNTARY REORGANIZATIONS OF OTHER TRUSTS AT HAND.

The effect of these two decisions has led to decrees dissolving the
combination of manufacturers of electric lamps, a southern wholesale
grocers' association, an interlocutory decree against the Powder
Trust with directions by the circuit court compelling dissolution,
and other combinations of a similar history are now negotiating with
the Department of justice looking to a disintegration by decree and
reorganization in accordance with law. It seems possible to bring
about these reorganizations without general business disturbance.

MOVEMENT FOR REPEAL OF THE ANTI-TRUST LAW.

But now that the anti-trust act is seen to be effective for the
accomplishment of the purpose of its enactment, we are met by a cry
from many different quarters for its repeal. It is said to be
obstructive of business progress to be an attempt to restore
old-fashioned methods of destructive competition between small units,
and to make impossible those useful combinations of capital and the
reduction of the cost of production that are essential to continued
prosperity and normal growth.

In the recent decisions the Supreme Court makes clear that there is
nothing in the statute which condemns combinations of capital or mere
bigness of plant organized to secure economy in production and a
reduction of its cost. It is only when the purpose or necessary
effect of the organization and maintenance of the combination or the
aggregation of immense size are the stifling of competition, actual
and potential, and the enhancing of prices and establishing a
monopoly, that the statute is violated. Mere size is no sin against
the law. The merging of two or more business plants necessarily
eliminates competition between the units thus combined, but this
elimination is in contravention of the statute only when the
combination is made for purpose of ending this particular competition
in order to secure control of, and enhance, prices and create a
monopoly.

LACK OF DEFINITENESS IN THE STATUTE.

The complaint is made of the statute that it is not sufficiently
definite in its description of that which is forbidden, to enable
business men to avoid its violation. The suggestion is, that we may
have a combination of two corporations, which may run on for years,
and that subsequently the Attorney General may conclude that it was a
violation of the statute, and that which was supposed by the combiners
to be innocent then turns out to be a combination in violation of the
statute. The answer to this hypothetical case is that when men
attempt to amass such stupendous capital as will enable them to
suppress competition, control prices and establish a monopoly, they
know the purpose of their acts. Men do not do such a thing without
having it clearly in mind. If what they do is merely for the purpose
of reducing the cost of production, without the thought of
suppressing competition by use of the bigness of the plant they are
creating, then they can not be convicted at the time the union is
made, nor can they be convicted later, unless it happen that later on
they conclude to suppress competition and take the usual methods for
doing so, and thus establish for themselves a monopoly. They can, in
such a case, hardly complain if the motive which subsequently is
disclosed is attributed by the court to the original combination.

NEW REMEDIES SUGGESTED.

Much is said of the repeal of this statute and of constructive
legislation intended to accomplish the purpose and blaze a clear path
for honest merchants and business men to follow. It may be that such a
plan will be evolved, but I submit that the discussions which have
been brought out in recent days by the fear of the continued
execution of the anti-trust law have produced nothing but glittering
generalities and have offered no line of distinction or rule of
action as definite and as clear as that which the Supreme Court
itself lays down in enforcing the statute.

SUPPLEMENTAL LEGISLATION NEEDED--NOT REPEAL OR AMENDMENT.

I see no objection-and indeed I can see decided advantages-in the
enactment of a law which shall describe and denounce methods of
competition which are unfair and are badges of the unlawful purpose
denounced in the anti-trust law. The attempt and purpose to suppress
a competitor by underselling him at a price so unprofitable as to
drive him out of business, or the making of exclusive contracts with
customers under which they are required to give up association with
other manufacturers, and numerous kindred methods for stifling
competition and effecting monopoly, should be described with
sufficient accuracy in a criminal statute on the one hand to enable
the Government to shorten its task by prosecuting single misdemeanors
instead of an entire conspiracy, and, on the other hand, to serve the
purpose of pointing out more in detail to the business community what
must be avoided.

FEDERAL INCORPORATION RECOMMENDED.

In a special message to Congress on January 7, 1910, I ventured to
point out the disturbance to business that would probably attend the
dissolution of these offending trusts. I said:

"But such an investigation and possible prosecution of corporations
whose prosperity or destruction affects the comfort not only of
stockholders but of millions of wage earners, employees, and
associated tradesmen must necessarily tend to disturb the confidence
of the business community, to dry up the now flowing sources of
capital from its places of hoarding, and produce a halt in our
present prosperity that will cause suffering and strained
circumstances among the innocent many for the faults of the guilty
few. The question which I wish in this message to bring clearly to
the consideration and discussion of Congress is whether, in order to
avoid such a possible business danger, something can not be done by
which these business combinations may be offered a means, without
great financial disturbance, of changing the character, organization,
and extent of their business into one within the lines of the law
under Federal control and supervision, securing compliance with the
anti-trust statute.

"Generally, in the industrial combinations called 'trusts,' the
principal business is the sale of goods in many States and in foreign
markets; in other words, the interstate and foreign business far
exceeds the business done in any one State. This fact will justify
the Federal Government in granting a Federal charter to such a
combination to make and sell in interstate and foreign commerce the
products of useful manufacture under such limitations as will secure
a compliance with the anti-trust law. It is possible so to frame a
statute that while it offers protection to a Federal company against
harmful, vexatious, and unnecessary invasion by the States, it shall
subject it to reasonable taxation and control by the States with
respect to its purely local business. * * *

"Corporations organized under this act should be prohibited from
acquiring and holding stock in other corporations (except for special
reasons, upon approval by the proper Federal authority), thus avoiding
the creation under national auspices of the holding company with
subordinate corporations in different States, which has been such an
effective agency in the creation of the great trusts and monopolies.

"If the prohibition of the anti-trust act against combinations in
restraint of trade is to be effectively enforced, it is essential
that the National Government shall provide for the creation of
national corporations to carry on a legitimate business throughout
the United States. The conflicting laws of the different States of
the Union with respect to foreign corporations make it difficult, if
not impossible, for one corporation to comply with their requirements
so as to carry on business in a number of different States."

I renew the recommendation of the enactment of a general law
providing for the voluntary formation of corporations to engage in
trade and commerce among the States and with foreign nations. Every
argument which was then advanced for such a law, and every
explanation which was at that time offered to possible objections,
have been confirmed by our experience since the enforcement of the
antitrust, statute has resulted in the actual dissolution of active
commercial organizations.

It is even more manifest now than it was then that the denunciation
of conspiracies in restraint of trade should not and does not mean
the denial of organizations large enough to be intrusted with our
interstate and foreign trade. It has been made more clear now than it
was then that a purely negative statute like the anti-trust law may
well be supplemented by specific provisions for the building up and
regulation of legitimate national and foreign commerce.

GOVERNMENT ADMINISTRATIVE EXPERTS NEEDED TO AID COURTS IN TRUST
DISSOLUTIONS.

The drafting of the decrees in the dissolution of the present trusts,
with a view to their reorganization into legitimate corporations, has
made it especially apparent that the courts are not provided with the
administrative machinery to make the necessary inquiries preparatory
to reorganization, or to pursue such inquiries, and they should be
empowered to invoke the aid of the Bureau of Corporations in
determining the suitable reorganization of the disintegrated parts.
The circuit court and the Attorney General were greatly aided in
framing the decree in the Tobacco Trust dissolution by an expert from
the Bureau of Corporations.

FEDERAL CORPORATION COMMISSION PROPOSED.

I do not set forth in detail the terms and sections of a statute
which might supply the constructive legislation permitting and aiding
the formation of combinations of capital into Federal corporations.
They should be subject to rigid rules as to their organization and
procedure, including effective publicity, and to the closest
supervision as to the issue of stock and bonds by an executive bureau
or commission in the Department of Commerce and Labor, to which in
times of doubt they might well submit their proposed plans for future
business. It must be distinctly understood that incorporation under
Federal law could not exempt the company thus formed and its
incorporators and managers from prosecution under the anti-trust law
for subsequent illegal conduct, but the publicity of its procedure
and the opportunity for frequent consultation with the bureau or
commission in charge of the incorporation as to the legitimate
purpose of its transactions would offer it as great security against
successful prosecutions for violations of the law as would be
practical or wise.

Such a bureau or commission might well be invested also with the duty
already referred to, of aiding courts in the dissolution and
recreation of trusts within the law. It should be an executive
tribunal of the dignity and power of the Comptroller of the Currency
or the Interstate Commerce Commission, which now exercise supervisory
power over important classes of corporations under Federal
regulation.

The drafting of such a Federal incorporation law would offer ample
opportunity to prevent many manifest evils in corporate management
to-day, including irresponsibility of control in the hands of the few
who are not the real owners.

INCORPORATION VOLUNTARY.

I recommend that the Federal charters thus to be granted shall be
voluntary, at least until experience justifies mandatory provisions.
The benefit to be derived from the operation of great businesses
under the protection of such a charter would attract all who are
anxious to keep within the lines of the law. Other large combinations
that fail to take advantage of the Federal incorporation will not have
a right to complain if their failure is ascribed to unwillingness to
submit their transactions to the careful official scrutiny, competent
supervision, and publicity attendant upon the enjoyment of such a
charter.

ONLY SUPPLEMENTAL LEGISLATION NEEDED.

The opportunity thus suggested for Federal incorporation, it seems
tome, is suitable constructive legislation needed to facilitate the
squaring Of great industrial enterprises to the rule of action laid
down by the anti-trust law. This statute as construed by the Supreme
Court must continue to be the line of distinction for legitimate
business. It must be enforced, unless we are to banish individualism
from all business and reduce it to one common system of regulation or
control of prices like that which now prevails with respect to public
utilities, and which when applied to all business would be a long
step toward State socialism.

IMPORTANCE OF THE ANTI-TRUST ACT.

The anti-trust act is the expression of the effort of a
freedom-loving people to preserve equality of opportunity. It is the
result of the confident determination of such a people to maintain
their future growth by preserving uncontrolled and unrestricted the
enterprise of the individual, his industry, his ingenuity, his
intelligence, and his independent courage.

For twenty years or more this statute has been upon the statute book.
All knew its general purpose and approved. Many of its violators were
cynical over its assumed impotence. It seemed impossible of
enforcement. Slowly the mills of the courts ground, and only
gradually did the majesty of the law assert itself. Many of its
statesmen-authors died before it became a living force, and they and
others saw the evil grow which they had hoped to destroy. Now its
efficacy is seen; now its power is heavy; now its object is near
achievement. Now we hear the call for its repeal on the plea that it
interferes with business prosperity, and we are advised in most
general terms, how by some other statute and in some other way the
evil we are just stamping out can be cured, if we only abandon this
work of twenty years and try another experiment for another term of
years.

It is said that the act has not done good. Can this be said in the
face of the effect of the Northern Securities decree? That decree was
in no way so drastic or inhibitive in detail as either the Standard
Oil decree or the Tobacco decree; but did it not stop for all time
the then powerful movement toward the control of all the railroads of
the country in a single hand? Such a one-man power could not have been
a healthful influence in the Republic, even though exercised under the
general supervision of an interstate commission.

Do we desire to make such ruthless combinations and monopolies
lawful? When all energies are directed, not toward the reduction of
the cost of production for the public benefit by a healthful
competition, but toward new ways and means for making permanent in a
few hands the absolute control of the conditions and prices
prevailing in the whole field of industry, then individual enterprise
and effort will be paralyzed and the spirit of commercial freedom will
be dead.

PART II.

The relations of the United States with other countries have
continued during the past twelve months upon a basis of the usual
good will and friendly intercourse. ARBITRATION.

The year just passed marks an important general movement on the part
of the Powers for broader arbitration. In the recognition of the
manifold benefits to mankind in the extension of the policy of the
settlement of international disputes by arbitration rather than by
war, and in response to a widespread demand for an advance in that
direction on the part of the people of the United States and of Great
Britain and of France, new arbitration treaties were negotiated last
spring with Great Britain and France, the terms of which were de
signed, as expressed in the preamble of these treaties, to extend the
scope and obligations of the policy of arbitration adopted in our
present treaties with those Governments To pave the way for this
treat with the United States, Great Britain negotiated an important
modification in its alliance with Japan, and the French Government
also expedited the negotiations with signal good will. The new
treaties have been submitted to the Senate and are awaiting its
advice and consent to their ratification. All the essentials of these
important treaties have long been known, and it is my earnest hope
that they will receive prompt and favorable action.

CLAIM OF ALSOP & CO. SETTLED.

I am glad to report that on July 5 last the American claim of Alsop &
Co. against the Government of Chile was finally disposed of by the
decision of His Britannic Majesty George V, to whom, as amiable
compositeur, the matter had been referred for determination. His
Majesty made an award of nearly $1,000,000 to the claimants, which
was promptly paid by Chile. The settlement of this controversy has
happily eliminated from the relations between the Republic of Chile
and the United States the only question which for two decades had
given the two foreign offices any serious concern and makes possible
the unobstructed development of the relations of friendship which it
has been the aim of this Government in every possible way to further
and cultivate.

ARBITRATIONS-- PANAMA AND COSTA RICA-- COLOMBIA AND HAITI.

In further illustration of the practical and beneficent application
of the principle of arbitration and the underlying broad spirit of
conciliation, I am happy to advert to the part of the United States
in facilitating amicable settlement of disputes which menaced the
peace between Panama and Costa Rica and between Haiti and the
Dominican Republic.

Since the date of their independence, Colombia and Costa Rica had
been seeking a solution of a boundary dispute, which came as an
heritage from Colombia to the new Republic of Panama, upon its
beginning life as an independent nation. Although the disputants had
submitted this question for decision to the President of France under
the terms of an arbitration treaty, the exact interpretation of the
provisions of the award rendered had been a matter of serious
disagreement between the two countries, both contending for widely
different lines even under the terms of the decision. Subsequently
and since 1903 this boundary question had been the subject of
fruitless diplomatic negotiations between the parties. In January,
1910, at the request of both Governments the agents representing them
met in conference at the Department of State and subsequently
concluded a protocol submitting this long-pending controversy to the
arbitral judgment of the Chief justice of the United States, who
consented to act in this capacity. A boundary commission, according
to the international agreement, has now been appointed, and it is
expected that the arguments will shortly proceed and that this
long-standing dispute will be honorably and satisfactorily
terminated.

Again, a few months ago it appeared that the Dominican Republic and
Haiti were about to enter upon hostilities because of complications
growing out of an acrimonious boundary dispute which the efforts of
many years had failed to solve. The Government of the United States,
by a friendly interposition of good offices, succeeded in prevailing
upon the parties to place their reliance upon some form of pacific
settlement. Accordingly, on the friendly suggestion of this
Government, the two Governments empowered commissioners to meet at
Washington in conference at the State Department in order to arrange
the terms of submission to arbitration of the boundary controversy.

CHAMIZAL ARBITRATION NOT SATISFACTORY.

Our arbitration of the Chamizal boundary question with Mexico was
unfortunately abortive, but with the earnest efforts on the part of
both Governments which its importance commands, it is felt that an
early practical adjustment should prove possible.

LATIN AMERICA. VENEZUELA.

During the past year the Republic of Venezuela celebrated the one
hundredth anniversary of its independence. The United States sent, in
honor of this event, a special embassy to Caracas, where the cordial
reception and generous hospitality shown it were most gratifying as a
further proof of the good relations and friendship existing between
that country and the United States. MEXICO.

The recent political events in Mexico received attention from this
Government because of the exceedingly delicate and difficult
situation created along our southern border and the necessity for
taking measures properly to safeguard American interests. The
Government of the United States, in its desire to secure a proper
observance and enforcement of the so-called neutrality statutes of
the Federal Government, issued directions to the appropriate officers
to exercise a diligent and vigilant regard for the requirements of
such rules and laws. Although a condition of actual armed conflict
existed, there was no official recognition of belligerency involving
the technical neutrality obligations of international law.

On the 6th of March last, in the absence of the Secretary of State, I
had a personal interview with Mr. Wilson, the ambassador of the United
States to Mexico, in which he reported to me that the conditions in
Mexico were much more critical than the press dispatches disclosed;
that President Diaz was on a volcano of popular uprising; that the
small outbreaks which had occurred were only symptomatic of the whole
condition; that a very large per cent of the people were in sympathy
with the insurrection; that a general explosion was probable at any
time, in which case he feared that the 40,000 or more American
residents in Mexico might be assailed, and that the very large
American investments might be injured or destroyed.

After a conference with the Secretary of War and the Secretary of the
Navy, I thought it wise to assemble an Army division of full strength
at San Antonio, Tex., a brigade of three regiments at Galveston, a
brigade of Infantry in the Los Angeles district of southern
California, together with a squadron of battleships and cruisers and
transports at Galveston, and a small squadron of ships at San Diego.
At the same time, through our representative at the City of Mexico, I
expressed to President Diaz the hope that no apprehensions might
result from unfounded conjectures as to these military maneuvers, and
assured him that they had no significance which should cause concern
to his Government.

The mobilization was effected with great promptness, and on the 15th
of March, through the Secretary of War and the Secretary of the Navy,
in a letter addressed to the Chief of Staff, I issued the following
instructions: It seems my duty as Commander in Chief to place troops
in sufficient number where, if Congress shall direct that they enter
Mexico to save American lives and property, an effective movement may
be promptly made. Meantime, the movement of the troops to Texas and
elsewhere near the boundary, accompanied with sincere assurances of
the utmost goodwill toward the present Mexican Government and with
larger and more frequent patrols along the border to prevent
insurrectionary expeditions from American soil, will hold up the
hands of the existing Government and will have a healthy moral effect
to prevent attacks upon Americans and their property in any subsequent
general internecine strife. Again, the sudden mobilization of a
division of troops has been a great test of our Army and full of
useful instruction, while the maneuvers that are thus made possible
can occupy the troops and their officers to great advantage.

The assumption by the press that I contemplate intervention on
Mexican soil to protect American lives or property is of course
gratuitous, because I seriously doubt whether I have such authority
under any circumstances, and if I had I would not exercise it without
express congressional approval. Indeed, as you know, I have already
declined, without Mexican consent, to order a troop of Cavalry to
protect the breakwater we are constructing just across the border in
Mexico at the mouth of the Colorado River to save the Imperial
Valley, although the insurrectos had scattered the Mexican troops and
were taking our horses and supplies and frightening our workmen away.
My determined purpose, however, is to be in a position so that when
danger to American lives and property in Mexico threatens and the
existing Government is rendered helpless by the insurrection, I can
promptly execute congressional orders to protect them, with effect.

Meantime, I send you this letter, through the Secretary, to call your
attention to some things in connection with the presence of the
division in the Southwest which have doubtless occurred to you, but
which I wish to emphasize.

In the first place, I want to make the mobilization a first-class
training for the Army, and I wish you would give your time and that
of the War College to advising and carrying out maneuvers of a useful
character, and plan to continue to do this during the next three
months. By that time we may expect that either Ambassador Wilson's
fears will have been realized and chaos and its consequences have
ensued, or that the present Government of Mexico will have so
readjusted matters as to secure tranquillity-a result devoutly to be
wished. The troops can then be returned to their posts. I understood
from you in Washington that Gen. Aleshire said that you could
probably meet all the additional expense of this whole movement out
of the present appropriations if the troops continue in Texas for
three months. I sincerely hope this is so. I observe from the
newspapers that you have no blank cartridges, but I presume that this
is an error, or that it will be easy to procure those for use as soon
as your maneuvers begin.

Second. Texas is a State ordinarily peaceful, but you can not put
20,000 troops into it without running some risk of a collision
between the people of that State, and especially the Mexicans who
live in Texas near the border and who sympathize with the
insurrectos, and the Federal soldiers. For that reason I beg you to
be as careful as you can to prevent friction of any kind. We were
able in Cuba, with the army of pacification there of something more
than 5,000 troops, to maintain them for a year without any trouble,
and I hope you can do the same thing in Texas. Please give your
attention to this, and advise all the officers in command of the
necessity for very great circumspection in this regard.

Third. One of the great troubles in the concentration of troops is
the danger of disease, and I suppose that you have adopted the most
modern methods for preventing and, if necessary, for stamping out
epidemics. That is so much a part of a campaign that it hardly seems
necessary for me to call attention to it.

Finally, I wish you to examine the question of the patrol of the
border and put as many troops on that work as is practicable, and
more than are now engaged in it, in order to prevent the use of our
borderland for the carrying out of the insurrection. I have given
assurances to the Mexican ambassador on this point.

I sincerely hope that this experience will always be remembered by
the Army and Navy as a useful means of education, and I should be
greatly disappointed if it resulted in any injury or disaster to our
forces from any cause. I have taken a good deal of responsibility in
ordering this mobilization, but I am ready to answer for it if only
you and those under you use the utmost care to avoid the difficulties
which I have pointed out.

You may have a copy of this letter made and left with Gen. Carter and
such other generals in command as you may think wise and necessary to
guide them in their course, but to be regarded as confidential. I am
more than happy to here record the fact that all apprehensions as to
the effect of the presence of so large a military force in Texas
proved groundless; no disturbances occurred; the conduct of the
troops was exemplary and the public reception and treatment of them
was all that could have been desired, and this notwithstanding the
presence of a large number of Mexican refugees in the border
territory.

From time to time communications were received from Ambassador
Wilson, who had returned to Mexico, confirming the view that the
massing of American troops in the neighborhood had had good effect.
By dispatch of April 3, 1911, the ambassador said: The continuing
gravity of the situation here and the chaos that would ensue should
the constitutional authorities be eventually overthrown, thus greatly
increasing the danger to which American lives and property are already
subject, confirm the wisdom of the President in taking those military
precautions which, making every allowance for the dignity and the
sovereignty of a friendly state, are due to our nationals abroad.

Charged as I am with the responsibility of safeguarding these lives
and property, I am bound to say to the department that our military
dispositions on the frontier have produced an effective impression on
the Mexican mind and may, at any moment, prove to be the only
guaranties for the safety of our nationals and their property. If it
should eventuate that conditions here require more active measures by
the President and Congress, sporadic attacks might be made upon the
lives and property of our nationals, but the ultimate result would be
order and adequate protection. The insurrection continued and resulted
In engagements between the regular Mexican troops and the insurgents,
and this along the border, so that in several instances bullets from
the contending forces struck American citizens engaged in their
lawful occupations on American soil.

Proper protests were made against these invasions of American rights
to the Mexican authorities. On April 17, 1911, I received the
following telegram from the governor of Arizona: As a result of
to-day's fighting across the international line, but within gunshot
range of the heart of Douglas, five Americans wounded on this side of
the line. Everything points to repetition of these casualties on
to-morrow, and while the Federals seem disposed to keep their
agreement not to fire into Douglas, the position of the
insurrectionists is such that when fighting occurs on the east and
southeast of the intrenchments people living in Douglas are put in
danger of their lives. In my judgment radical measures are needed to
protect our innocent people, and if anything can be done to stop the
fighting at Agua Prieta the situation calls for such action. It is
impossible to safeguard the people of Douglas unless the town be
vacated. Can anything be done to relieve situation, now acute? After
a conference with the Secretary of State, the following telegram was
sent to Governor Sloan, on April IS, 1911 9 11, and made public: Your
dispatch received. Have made urgent demand upon Mexican Government to
issue instructions to prevent firing across border by Mexican federal
troops, and am waiting reply. Meantime I have sent direct warning to
the Mexican and insurgent forces near Douglas. I infer from your
dispatch that both parties attempt to heed the warning, but that in
the strain and exigency of the contest wild bullets still find their
way into Douglas. The situation might justify me in ordering our
troops to cross the border and attempt to stop the fighting, or to
fire upon both combatants from the American side. But if I take this
step, I must face the possibility of resistance and greater
bloodshed, and also the danger of having our motives misconstrued and
misrepresented, and of thus inflaming Mexican popular indignation
against many thousand Americans now in Mexico and jeopardizing their
lives and property. The pressure for general intervention under such
conditions it might not be practicable to resist. It is impossible to
foresee or reckon the consequences of such a course, and we must use
the greatest self-restraint to avoid it. Pending my urgent
representation to the Mexican Government, I can not therefore order
the troops at Douglas to cross the border, but I must ask you and the
local authorities, in case the same danger recurs, to direct the
people of Douglas to place themselves where bullets can not reach
them and thus avoid casualty. I am loath to endanger Americans in
Mexico, where they are necessarily exposed, by taking a radical step
to prevent injury to Americans on our side of the border who can
avoid it by a temporary inconvenience. I am glad to say that no
further invasion of American rights of any substantial character
occurred.

The presence of a large military and naval force available for prompt
action, near the Mexican border, proved to be most fortunate under the
somewhat trying conditions presented by this invasion of American
rights Had no movement theretofore taken place, and because of these
events it had been necessary then to bring about the mobilization, it
must have had sinister significance. On the other hand, the presence
of the troops before and at the time of the unfortunate killing and
wounding of American citizens at Douglas, made clear that the
restraint exercised by our Government in regard to this Occurrence
was not due to lack of force or power to deal with it promptly and
aggressively, but was due to a real desire to use every means
possible to avoid direct intervention in the affairs of our neighbor
whose friendship we valued and were most anxious to retain.

The policy and action of this Government were based upon an earnest
friendliness for the Mexican people as a whole, and it is a matter of
gratification to note that this attitude of strict impartiality as to
all factions in Mexico and of sincere friendship for the neighboring
nation, without regard for party allegiance, has been generally
recognized and has resulted in an even closer and more sympathetic
understanding between the two Republics and a warmer regard one for
the other. Action to suppress violence and restore tranquillity
throughout the Mexican Republic was of peculiar interest to this
Government, in that it concerned the safeguarding of American life
and property in that country. The Government of the United States had
occasion to accord permission for the passage of a body of Mexican
rurales through Douglas, Arizona, to Tia Juana, Mexico, for the
suppression of general lawlessness which had for some time existed in
the region of northern Lower California. On May 25, 1911, President
Diaz resigned, Senor de la Barra was chosen provisional President.
Elections for President and Vice President were thereafter held
throughout the Republic, and Senor Francisco I. Madero was formally
declared elected on October 15 to the chief magistracy. On November 6
President Madero entered upon the duties of his office.

Since the inauguration of President Madero a plot has been unearthed
against the present Government, to begin a new insurrection. Pursuing
the same consistent policy which this administration has adopted from
the beginning, it directed an investigation into the conspiracy
charged, and this investigation has resulted in the indictment of
Gen. Bernardo Reyes and others and the seizure of a number of
officers and men and horses and accoutrements assembled upon the soil
of Texas for the purpose of invading Mexico. Similar proceedings had
been taken during the insurrection against the Diaz Government
resulting in the indictments and prosecution of persons found to be
engaged in violating the neutrality laws of the United States in aid
of that uprising.

The record of this Government in respect of the recognition of
constituted authority in Mexico therefore is clear.

CENTRAL AMERICA-HONDURAS AND NICARAGUA TREATIES PROPOSED.

As to the situation in Central America, I have taken occasion in the
past to emphasize most strongly the importance that should be
attributed to the consummation of the conventions between the
Republics of Nicaragua and of Honduras and this country, and I again
earnestly recommend that the necessary advice and consent of the
Senate be accorded to these treaties, which will make it possible for
these Central American Republics to enter upon an era of genuine
economic national development. The Government of Nicaragua which has
already taken favorable action on the convention, has found it
necessary, pending the exchange of final ratifications, to enter into
negotiations with American bankers for the purpose of securing a
temporary loan to relieve the present financial tension. III
connection with this temporary loan and in the hope of consummating,
through the ultimate operation of the convention, a complete and
lasting economic regeneration, the Government of Nicaragua has also
decided to engage an American citizen as collector general of
customs. The claims commission on which the services of two American
citizens have been sought, and the work of the American financial
adviser should accomplish a lasting good of inestimable benefit to
the prosperity, commerce, and peace of the Republic. In considering
the ratification of the conventions with Nicaragua and Honduras,
there rests with the United States the heavy responsibility of the
fact that their rejection here might destroy the progress made and
consign the Republics concerned to still deeper submergence in
bankruptcy, revolution, and national jeopardy. PANAMA.

Our relations with the Republic of Panama, peculiarly important, due
to mutual obligations and the vast interests created by the canal,
have continued in the usual friendly manner, and we have been glad to
make appropriate expression of our attitude of sympathetic interest in
the endeavors of our neighbor in undertaking the development of the
rich resources of the country. With reference to the internal
political affairs of the Republic, our obvious concern is in the
maintenance of public peace and constitutional order, and the
fostering of the general interests created by the actual relations of
the two countries, without the manifestation of any preference for the
success of either of the political parties.

THE PAN AMERICAN UNION.

The Pan American Union, formerly known as the Bureau of American
Republics, maintained by the joint contributions of all the American
nations, has during the past year enlarged its practical work as an
international organization, and continues to prove its usefulness as
an agency for the mutual development of commerce, better
acquaintance, and closer intercourse between the United States and
her sister American republics.

THE FAR EAST.

THE CHINESE LOANS.

The past year has been marked in our relations with China by the
conclusion of two important international loans, one for the
construction of the Hukuang railways, the other for carrying out of
the currency reform to which China was pledged by treaties with the
United States, Great Britain, and Japan, of which mention was made in
my last annual message.

It will be remembered that early in 1909 an agreement was consummated
among British, French, and German financial groups whereby they
proposed to lend the Chinese Government funds for the construction of
railways in the Provinces of Hunan and Hupeh, reserving for their
nationals the privilege of engineering the construction of the lines
and of furnishing the materials required for the work. After
negotiations with the Governments and groups concerned an agreement
was reached whereby American, British, French, and German nationals
should participate upon equal terms in this important and useful
undertaking. Thereupon the financial groups, supported by their
respective Governments, began negotiations with the Chinese
Government which terminated in a loan to China Of $30,000,000, with
the privilege of increasing the amount to $50,000,000. The
cooperative construction of these trunk lines should be of immense
advantage, materially and otherwise, to China and should greatly
facilitate the development of the bountiful resources of the Empire.
On the other hand, a large portion of these funds is to be expended
for materials, American products having equal preference with those
of the other three lending nations, and as the contract provides for
branches and extensions subsequently to be built on the same terms
the opportunities for American materials will reach considerable
proportions.

Knowing the interest of the United States in the reform of Chinese
currency, the Chinese Government, in the autumn of 1910 sought the
assistance of the American Government to procure funds with which to
accomplish that all-important reform. In the course of the subsequent
negotiations there was combined with the proposed currency loan one
for certain industrial developments in Manchuria, the two loans
aggregating the sum Of $50,000,000. While this was originally to be
solely an American enterprise, the American Government, consistently
with its desire to secure a sympathetic and practical cooperation of
the great powers toward maintaining the principle of equality of
opportunity and the administrative integrity of China, urged the
Chinese Government to admit to participation in the currency loan the
associates of the American group in the Hukuang loan. While of immense
importance in itself, the reform contemplated in making this loan is
but preliminary to other and more comprehensive fiscal reforms which
will be of incalculable benefit to China and foreign interests alike,
since they will strengthen the Chinese Empire and promote the rapid
development of international trade.

NEUTRAL FINANCIAL ADVISER.

When these negotiations were begun, it was understood that a
financial adviser was to be employed by China in connection with the
reform, and in order that absolute equality in all respects among the
lending nations might be scrupulously observed, the American
Government proposed the nomination of a neutral adviser, which was
agreed to by China and the other Governments concerned. On September
28, 1911, Dr. Vissering, president of the Dutch Java Bank and a
financier of wide experience in the Orient, was recommended to the
Chinese Government for the post of monetary adviser.

Especially important at the present, when the ancient Chinese Empire
is shaken by civil war incidental to its awakening to the many
influences and activities of modernization, are the cooperative
policy of good understanding which has been fostered by the
international projects referred to above and the general sympathy of
view among all the Powers interested in the Far East. While
safeguarding the interests of our nationals, this Government is using
its best efforts in continuance of its traditional policy of sympathy
and friendship toward the Chinese Empire and its people, with the
confident hope for their economic and administrative development, and
with the constant disposition to contribute to their welfare in all
proper ways consistent with an attitude of strict impartiality as
between contending factions.

For the first time in the history of the two countries, a Chinese
cruiser, the Haichi, under the command of Admiral Ching, recently
visited New York, where the officers and men were given a cordial
welcome.

NEW JAPANESE TREATY.

The treaty of commerce and navigation between the United States and
Japan, signed in 1894, would by a strict interpretation of its
provisions have terminated on July 17, 1912. Japan's general treaties
with the other powers, however, terminated in 1911, and the Japanese
Government expressed an earnest desire to conduct the negotiations
for a new treaty with the United States simultaneously with its
negotiations with the other powers. There were a number of important
questions involved in the treaty, including the immigration of
laborers, revision of the customs tariff, and the right of Americans
to hold real estate in Japan. The United States consented to waive
all technicalities and to enter at once upon negotiations for a new
treaty on the understanding that there should be a continuance
throughout the, life of the treaty of the same effective measures for
the restriction of immigration of laborers to American territory which
had been in operation with entire satisfaction to both Governments
since 1908. The Japanese Government accepted this basis of
negotiation, and a new treaty was quickly concluded, resulting in a
highly satisfactory settlement of the other questions referred to.

A satisfactory adjustment has also been effected of the questions
growing out of the annexation of Korea by Japan.

The recent visit of Admiral Count Togo to the United States as the
Nation's guest afforded a welcome opportunity to demonstrate the
friendly feeling so happily existing between the two countries.
SIAM.

There has been a change of sovereigns in Siam and the American
minister at Bangkok was accredited in a special capacity to represent
the United States at the coronation ceremony of the new King.

EUROPE AND THE NEAR EAST.

In Europe and the Near East, during the past twelve-month, there has
been at times considerable political unrest. The Moroccan question,
which for some months was the cause of great anxiety, happily appears
to have reached a stage at which it need no longer be regarded with
concern. The Ottoman Empire was occupied for a period by strife in
Albania and is now at war with Italy. In Greece and the Balkan
countries the disquieting potentialities of this situation have been
more or less felt. Persia has been the scene of a long internal
struggle. These conditions have been the cause of uneasiness in
European diplomacy, but thus far without direct political concern to
the United States.

In the war which unhappily exists between Italy and Turkey this
Government has no direct political interest, and I took occasion at
the suitable time to issue a proclamation of neutrality in that
conflict. At the same time all necessary steps have been taken to
safeguard the personal interests of American citizens and
organizations in so far as affected by the war.

COMMERCE WITH THE NEAR EAST.

In spite of the attendant economic uncertainties and detriments to
commerce, the United States has gained markedly in its commercial
standing with certain of the nations of the Near East. Turkey,
especially, is beginning to come into closer relations with the
United States through the new interest of American manufacturers and
exporters in the possibilities of those regions, and it is hoped that
foundations are being laid for a large and mutually beneficial
exchange of commodities between the two countries. This new interest
of Turkey in American goods is indicated by the fact that a party of
prominent merchants from a large city in Turkey recently visited the
United States to study conditions of manufacture and export here, and
to get into personal touch with American merchants, with a view to
cooperating more intelligently in opening up the markets of Turkey
and the adjacent countries to our manufactures. Another indication of
this new interest of America in the commerce of the Near East is the
recent visit of a large party of American merchants and manufacturers
to central and eastern Europe, where they were entertained by
prominent officials and organizations of the large cities, and new
bonds of friendship and understanding were established which can not
but lead to closer and greater commercial interchange.

CORONATION OF KING GEORGE V.

The 22d of June of the present year marked the coronation of His
Britannic Majesty King George V. In honor of this auspicious occasion
I sent a special embassy to London. The courteous and cordial welcome
extended to this Government's representatives by His Majesty and the
people of Great Britain has further emphasized the strong bonds of
friendship happily existing between the two nations.

SETTLEMENT OF LONG-STANDING DIFFERENCES WITH GREAT BRITAIN.

As the result of a determined effort on the part of both Great
Britain and the United States to settle all of their outstanding
differences a number of treaties have been entered into between the
two countries in recent years, by which nearly all of the unsettled
questions between them of any importance have either been adjusted by
agreement or arrangements made for their settlement by arbitration. A
number of the unsettled questions referred to consist of pecuniary
claims presented by each country against the other, and in order that
as many of these claims as possible should be settled by arbitration a
special agreement for that purpose was entered into between the two
Governments on the 18th day of August, 1910, in accordance with
Article 11 of the general arbitration treaty with Great Britain of
April 4, 19o8. Pursuant to the provisions of this special agreement a
schedule of claims has already been agreed upon, and the special
agreement, together with this schedule, received the approval of the
Senate when submitted to it for that purpose at the last session of
Congress. Negotiations between the two Governments for the
preparation of an addi