The revenue for 1921 ($12,040,116.70) fell short of the required minimum, as estimated by Professor Johnson, by more than $8,000,000; and although revenues are increasing rapidly, it will be some years before they attain to $20,250,000. In the meantime the estimate itself requires revision.

Professor Johnson assumed the capital cost of the canal to be $400,000,000, and estimated the annual cost of operation and maintenance at $5,000,000. This latter figure was based on pre-war wages and material prices. The actual expenses of operation and maintenance for the fiscal year 1921, when wages were at their highest and the supplies used were purchased at the peak of the market, aggregated $9,328,300.14. The average for seven years was $6,569,438.14. It is certain that future costs will be lower than those of 1921, but it is not probable that we shall get back again to pre-war conditions. A reasonable estimate of future expenses of operation and maintenance would be $7,000,000. As to the capital cost, the auditor of the Panama Canal in a memorandum submitted to the Special Panama Canal Commission in June, 1921, offered the following figures:

Net cost of Panama Canal to June 30, 1920

Interest on above.

Total.

.$357,175,822.86 114,038,607.27 .$471,214,430.13

These figures do not include fortifications, the cost of municipal improvements in the cities of Panama and Colon—a charge which is now being repaid with interest by the Republic of Panama-or the value of the plant transferred to the Army and the Alaskan Railroad Commission, all items which are not properly

cial enterprise. The figures also do not include certain auxiliary equipment. The auditor estimates the total capital cost of the canal with. equipment up to June 30, 1920, at $485,000,000.

Professor Johnson's estimate of the revenues required to put the canal on a commercially sound basis may, therefore, be revised as follows:

Operation, maintenance, sanitation and
government

Annuity payable to the Republic of
Panama

Interest at 3 per cent. on the cost of
the canal

$7,000,000

250,000

14,550,000

Amortization of the investment (4 of 1 per cent.)

3,637,500

Although the revenues for 1921 were less than half of the required total, the canal can undoubtedly be made to pay, if it is administered with that end in view. ⚫

It was estimated, after a very careful study of the normal growth of maritime trade, that the traffic through the canal would increase at the rate of 60 per cent. per decade. In spite of the war and post-war conditions, the traffic to date has exceeded that rate of increase. tolls, if they are maintained, will eventually yield the required revenue.

The

Apart from tolls, which are the main source of revenue, the canal derives some income from auxiliary business operations, notably repair shops, dry docks, fuel oil plants, ship chandlery stores, fresh water supply, hotels and restaurants. The net income from these sources, included in the total revenue for 1921 of $12,040,116.70, was $778,197.39.

The net profits of the Panama Railroad Company might also logically be added to the revenues derived from the operation of the canal, although this has never been done, and the company, so far as its finances are concerned, has been treated as an entirely separate entity. The railroad and steamship line were purchased from the French Canal Company in 1904, together with that company's other

plant and franchises, for which the United States paid a lump sum of $40,000,000, charged against the construction cost of the canal. The net income of the Panama Railroad Company from 1904 to 1920, after paying all charges, was $27,400,151.03. This has been invested in the development of the property. The capital assets, consisting of steamships, rolling stock, other plant and real estate, increased from $12,669,821.62 in 1904 to $34,365,170.32 in 1920. The net income on capital invested has been at the rate of 7.5 per cent. per annum.

The activities of the Panama Railroad Company are inextricably involved with those of the Panama Canal, and there is no clear division of functions. Though the fuel oil plants are operated by the canal, the coaling plants are operated by the railroad. The canal supplies ships with marine hardware, cordage. paints, &c., and the railroad furnishes ships with provisions. All but one of the docks at the Cristobal terminal were built with railroad funds, and all but one of the docks at the Balboa terminal with canal funds. The Hotel Tivoli at Ancon is operated by the canal, and the Hotel Washington at Colon by the railroad. The Governor of the Panama Canal is President of the Panama Railroad Company. The Panama Railroad Company is, in fact, an auxiliary of the Panama Canal, or a subsidiary corporation, and its net income might properly be included in the revenues of the canal. If this income does not fall below the average of the last seventeen years, it will amount to $2,000,000 per annum.

TOLL RATE LOSSES

If all its sources of revenue are developed, as they would be under corporation management, it is fairly obvious that the canal can attain to a financially sound position at an early date. But this presupposes that Congress will administer the canal as a national investment, and not sacrifice its earnings to provide an indirect subsidy for American shipping.

Congressional action, or rather Congressional neglect, has already deprived the canal of 14 per cent. of its legitimate income from tolls. The facts are these:

Prior to the opening of the canal the assessment of tolls was the subject of an exhaustive study by Professor Emory R. Johnson, acting under the instructions of the Secretary of War. The actual earning capacity of vessels, as reflected in net tonnage, was universally accepted as the logical basis for tolls; but the measurement rules of the different maritime nations, including the United States, were found to be fundamentally at fault, in that net tonnage derived from them represented in a degree the manipulative skill of steamship owners and builders. Therefore the Panama Canal Rules of Measurement were formulated, which, according to the testimony of Mr. E. T. Chamberlain, United States Commissioner of Navigation," are recognized by the most competent authorities the world over as the most exact application of the scientific principles which should govern the subject yet prepared."

Section 5 of the Panama Canal act (Aug. 24, 1912) provides that "Tolls shall not exceed $1.25 per net registered ton," it being assumed with reason by all concerned that the net registered tonnage referred to was that derived from the Panama Canal Rules. The canal accordingly began business on that satisfactory basis.

Article VII. of the Panama Canal Rules of Measurement provided that all tolls payable on a vessel's net tonnage should be increased by the tonnage of the goods carried on the vessel's deck. A concerted agitation was at once started and persistently maintained by the West Coast lumber interests in protest against the payment of tolls for deck cargo, as provided under this article, on the ground that this was contrary to the law limiting the maximum tolls to $1.25 per net ton. This led to an unexpected result of far more extended scope.

The whole matter was referred to

the Attorney General, who rendered an opinion that net registered tonnage did not mean that derived from the special rules provided for the Panama Canal, but rather the equivalent of the net tonnage derived under the United States rules of measurement. Accordingly, supplementary instructions pursuant to this opinion were issued by the President, stating that when the amount obtained by multiplying $1.25 by the net tonnage, in accordance with the Panama Canal rules, is greater than the amount obtained by multiplying $1.25 by the net tonnage as determined by the United States rules of measurement, the excess amount is uncollectible.'

This ruling made necessary two certificates of measurement for each ship, one in accordance with the Panama Canal rules and one in accordance with the United States rules. The assessment of tolls was needlessly and ridiculously complicated, and made to depend, in the end, not on the scientific and equitable measurement rules prepared after exhaustive study especially for the canal, but on rules which by comparison are obsolete, arbitrary and

unfair. As far as canal revenues are concerned, the result has been equivalent to a 14 per cent. reduction in the toll rate. Since the original rates were not burdensome, and the canal was not on a paying basis, this in itself was objectionable, but the reduction was not even uniform. Complete statistics covering the period since the canal opened show that the ratio of savings distributed among vessels of all nationalities is incontrovertibly in favor of foreign vessels. For the calendar year 1920, American vessels paid 87 per cent. of their tolls reckoned on the basis of Panama Canal net tonnage, and foreign vessels only 84 per cent. Year after year efforts have been made to restore by legislation the original Panama Canal measurement rules, but Congress has declined to act.

EXEMPTING AMERICAN SHIPS

It is now proposed to exempt American vessels engaged in the coastwise trade from the payment of tolls. If the bill having this object, which is now before Congress, is enacted into law, it will reduce canal revenues from

tolls by 12 per cent. The coastwise trade has not the least need of subsidy or legislative encouragement.. It is already an American monopoly from which all foreign ships are excluded, and after being neglected during the war, when all available tonnage was diverted to the North Atlantic, it is now growing with amazing rapidity. For example, the coastwise tonnage through the Panama Canal during the first eight months of 1921 exceeded that of the entire year 1920.

It is said that the advocates of this measure, though admitting that the coastwise trade needs no subsidy, design their bill as the entering wedge leading to the exemption of all American shipping. Without discussing the policy of such an exemption, as a partial subsidy of benefit to a fraction only of the American merchant marine, or the interpretation of the Hay-Pauncefote Treaty, wherein it is provided that "the canal shall be free and open to the vessels of commerce and of war of all nations * * * terms of entire equality, so that there shall be no discrimination against any such nation, or its citizens or subjects," it is pertinent to state that this wider exemption would have the effect of cutting 40 per cent. from the income from tolls, and postpone to the Greek Calends the day when the canal will begin to earn legitimate interest on the capital invested.

on

Professor Emory R. Johnson, in the paper already referred to, laid down as follows the principles which, if adopted, would make for a sound business policy:

management of the canal there should be the same strict adherence to business principles.

Tolls have been fixed to be paid by all vessels using the canal. Doubtless pressure will be brought from time to time upon Congress and on the President to lower the rate of tolls. The Government should resist this pressure until the revenues derived from the canal cover the annual operation and maintenance expenses and the interest on what it cost to build the waterway.

* *

If the rate of tolls which has been estab lished is maintained for ten years, and if subsequent reductions in the rate of tolls are conservatively made, it will be possible for the American people to secure from the Panama Canal revenues that will cover out-of-pocket expenses and return to the United States Treasury the sum that has been invested in the waterway. This can be done without resricting the usefulness of the canal; and if this policy is fol lowed out, it will be possible for the United States, with less burden to the taxpayers of the country, to construct other needed public works.

A scientific code of tonnage rules has been formulated and put into force for the measurement of all vessels used in the Panama Canal. Those who have to pay tolls naturally desire and seek to have the tonnage rules so changed as to lessen the amount paid by vessel owners. It is to be hoped that the President and the Secretary of War, who are in charge of the administration of the canal, will resolutely maintain the tonnage rules as they now stand, or will make only such modifications in the rules as may be required to give them greater definiteness.

Among the economic aspects of the Panama Canal to which especial attention should be given is that of managing the canal in a businesslike manner. It is now being wisely managed. The present policy of charging reasonable tolls upon all vessels, and of applying impartially to all types of merchant vessels a code of tonnage rules so framed as to determine and express the actual capacity available for carrying cargo and for accommodating passengers, should be zealously maintained. If this be done the United States will demonstrate to the world that a great Government enterprise can be managed in accordance with sound economic principles.

This prophetic advice is as sound today as its was six years ago, when it was first published.

T

To

O understand clearly the appeal made recently by Bolivia before the Assembly of the League of Nations at Geneva, it is necessary to review the causes and consequences of the war waged by Chile against both Bolivia and Peru from 1879 to 1883. This war originally started with Bolivia. Chile had had an old territorial controversy with that country over a part of the province known today as Antofagasta. The great majority of the settlers of that mining desert were Chileans. secure South American solidarity prior to the war against Spain, Chile had finally pushed through a settlement of this dispute by a treaty signed in 1866. Under this treaty, Chile renounced her claims to territorial possession in exchange for certain advantages, including the protection of Chilean interests in Bolivia. As difficulties arose in the application of the clauses providing for Bolivia's participation in the customs duties, Chile proposed a new treaty in 1874, under which she renounced her right to control the customs offices in the boundary zone, forgave Bolivia the sums not paid for participation since 1866, and left to the latter free dominion over the territory, with the sole exception of the following restrictions in favor of the Chilean interests established there:

Article 4-The export duties to be imposed on the minerals derived from the region mentioned in the foregoing articles ill not exceed the quota collected at present, and Chilean nationals, industries and

capital will not be subject to further contributions of any kind whatever, except those existing at present. The stipulation contained in this article will last for a period of twenty-five years.

Shortly after having pledged itself to this effect, the Bolivian Congress passed a law fixing. a minimum duty of 10 centavos per quintal of nitrate exported. This violation of the treaty and other violations of a similar nature made it necessary for Chile to solicit, through diplomatic channels, the withdrawal of these new tax laws which affected the Chilean industrials. The Chilean Government stated that the refusal of Bolivia to grant such a just request would force Chile to declare the border treaty void, and the consequences of this painful declaration would be to the exclusive responsibility of the party that had failed to comply with the treaty." the treaty." (Instructions of the Minister of Foreign Relations of Chile to his representative in Bolivia.)

Nevertheless, the Government of Bolivia went ahead with the law and proceeded to collect the tax by force from the Compania de Chilena de Salitres and the Railroad of Antofagasta, as from Feb. 14, 1878. The company refused to pay, invoking the treaty. Then their property was seized and the manager of the company was placed in prison.

As the treaty called for arbitration, Chile proposed this upon condition that the application of the tax law