to guard its revenues carefully. The present demands on the general budget are heavy and certain to be larger. Taxes must necessarily increase. Those who directly benefit from using the canal, rather than the general taxpayers, ought to pay the expense of operating and carrying the Panama Canal commercially.

The CHAIRMAN. Have you concluded your address?

Prof. JOHNSON. Yes, sir.

The CHAIRMAN. And you would apply that same principle which you have just enunciated with respect to other canals in this country, such as the Soo Canal?

Prof. JOHNSON. Not at present.
The CHAIRMAN. How soon?

Prof. JOHNSON. I do not know.

The CHAIRMAN. In view of your suggestion that all of these disbursements by the Government should be met by those who are immediately benefited by them rather than having the cost distributed among all the people, do you approve of these annual river and harbor appropriations aggregating, as was the case last year, $43,000,000?

Prof. JOHNSON. I approve of that. I think it might be well to make the appropriations even larger and carry on the works more rapidly, and as it becomes evident that the traffic using certain of the inland waterways can in the future return to the United States Treasury a portion of the investment which has been made in the improvement of those waterways, it would be well for the United States to modify the general policy which it now has of improving and maintaining all these works of internal improvement free of cost to the immediate

user.

The CHAIRMAN. Professor, you have given us an estimate which I think is a repetition of one that you prepared in 1911 as to the annual income to be derived by the Government from the use of the canal. You approximated it for a number of years at ten millions a year.

Prof. JOHNSON. My estimate was that the vessel tonnage would be ten and a half millions, and as the rate of tolls had been fixed at $1.20

The CHAIRMAN. What will be the average rate, taking into account ships moving in ballast without cargoes?

Prof. JOHNSON. Ships passing in ballast without passengers or cargo will constitute a very small percentage, possibly 4 per cent-I think 4 per cent I found was the percentage at the Suez Canal.

The CHAIRMAN. What do you think would be the average rate per ton for vessels going through the canal?

Prof. JOHNSON. For commercial vessels it would be slightly less than $1.20 on the average, but I wish to call attention to the fact, as perhaps you will have noticed, that I have taken no account of the revenue from warships, which would, I think, offset the possible 4 per cent of tonnage; that would have a 40 per cent discount.

The CHAIRMAN. And then you have estimated at about one-tenth of the amount you have indicated would represent the coastwise trade use of the canal?

Prof. JOHNSON. At the beginning.

The CHAIRMAN. And that, approximately, whether it be exempt of the charge, would represent about $1,000,000 a year?

Prof. JOHNSON. At the beginning it would represent $1,200,000. The CHAIRMAN. $1,200.000. Now, you prepared that statement at a time when we had, roughly, 24,000 coastwise or domestic craft in the United States and before Congress in 1912 excluded all railroadcontrolled or trust-controlled-trust-owned-ships from the use of the canal; is that not so?

Prof. JOHNSON. Yes, sir.

The CHAIRMAN. And your colleague, I think, Dr. Huebner-by-theby, you are both connected with the University of Pennsylvania? Prof. JOHNSON. Yes, sir.

The CHAIRMAN. You have been joint authors of the same book? Prof. JOHNSON. No, sir; his younger brother was a joint author with me.

The CHAIRMAN. Well, it was stated by Dr. Huebner yesterday, or perhaps Mr. Chamberlain, of the Navigation Bureau, that there might be, in view of the provisions of the law of 1912, about 35 vessels in the American coastwise trade available for use in the Panama Canal. Do you agree with that estimate?

Prof. JOHNSON. No, sir: I do not agree with that estimate.

The CHAIRMAN. What would be your estimate as to the probable number of American coastwise vessels available for use in the Panama Canal.

Prof. JOHNSON. Seventy-five or eighty-possibly one hundred. It is a rough estimate.

The CHAIRMAN. Is it your opinion now that 75 or 80, or even 100, American coastwise vessels that are available for use in the Panama Canal, that their gross tonnage in the course of a year aggregates the the amount that you estimated in 1911?

Prof. JOHNSON. Yes, sir. I had the American-Hawaiian Steamship Co. prepare for me a calculation of the tonnage of canal traffic which their fleet would give rise to. There will be in operation, I think, at the opening of the canal, 28 vessels which will operate through the canal, and it was estimated by them, as I remember, that their canal tonnage would amount to something like 500,000 a year. You see each vessel makes several passages through the canal each year.

The CHAIRMAN. And you still think that if the American coastwise vessels were relieved from payment of tolls it would affect approximately about $1,000,000 a year?

Prof. JOHNSON. I think that was a very conservative estimate that the tonnage of the coastwise shipping the first two years would average 1,000,000 tons a year. The rate of toll at the present time is $1.20.

The CHAIRMAN. You stated a moment ago that according to your estimate the income from the canal, even if the American coastwise vessels were required to pay toll, would aggregate about $12,000,000; is that your figure?

Prof. JOHNSON. To start with, about $12,600,000.

The CHAIRMAN. And you estimate the expenses, including the carrying charges-the expenses of operation including the carrying charges at $19,000,000 a year?

Prof. JOHNSON. Yes, sir; $19,250,000 would cover the several items which I have enumerated.

The CHAIRMAN. And to that extent there would be a deficit in any event of almost $7,000,000 a year? Prof. JOHNSON. To start with, yes, sir.

The CHAIRMAN. In reaching your figures, which indicate a deficit of $7,000,000 a year, you have not taken into consideration the $10,000,000 to $15,000,000 which the Government will pay each year in order to suitably fortify and defend the canal, have you? Prof. JOHNSON. I have not given consideration to that.

The CHAIRMAN. Giving consideration to those figures, the entire deficit borne by the Treasury of the United States will be from $17,000,000 to $22,000,000 a year. Is that not so?

Prof. JOHNSON. That is correct, in the sense that

The CHAIRMAN. That expenditure is made for the benefit of the commerce of the world, including our own.

Prof. JOHNSON. I am not sure about the military and naval expenditures being for the benefit of other countries.

The CHAIRMAN. Why is it necessary to expend from $10,000,000 to $15,000,000 a year in defending the canal if it is not to keep the canal open for the commerce of the world?

Prof. JOHNSON. We are making of the Panama Canal Zone a very strong naval base at a very large expense-wisely so, I think-and also a strong military outpost.

The CHAIRMAN. But we would not have this expense if we did not have the Panama Canal?

Prof. JOHNSON. No; if the Panama Canal were not there, we would not incur the expense.

The CHAIRMAN. And yet you have stated to-day that the Panama Canal is an international highway. With certain limitations, it belongs to the world; is that correct?

Prof. JOHNSON. Yes, sir.

The CHAIRMAN. Then we are expending, in addition to the moneys already mentioned, this $10,000,000 to $15,000,000 a year to protect that canal.

Prof. JOHNSON. For our own purposes. We could have accomplished the neutralization of the canal by international agreement, as at Suez, I have no doubt. We chose, and wisely, to fortify the canal and make it a strong military and naval outpost of our country for general military and naval reasons. I do not think it would be generally considered that we have incurred this military and naval expense at the Panama Canal primarily for the benefit of other countries.

The CHAIRMAN. Do you not know that the Hay-Pauncefote treaty, which provides for the neutralization of the canal imposes the duty on the Government of the United States to preserve the neutrality and neutralization?

Prof. JOHNSON. Yes, sir.

The CHAIRMAN. And how could the United States, on whom the burden falls alone, preserve the neutrality of the canal against the world without defending it, as it proposes to defend it, at an expense out of its own Treasury of from $10,000,000 to $15,000,000 a year?

Prof. JOHNSON. Another method would have been not to have fortified the canal and not to have made it a naval outpost of our

country, but to have neutralized the canal by international convention, as many advocated.

The CHAIRMAN. There are only two plans. You say "many advocated." There are only two plans of neutralization that have ever come to my notice. The first plan, contemplated in the ClaytonBulwer treaty in 1850, by which Great Britain agreed to share with the United States the responsibility of maintaining the neutralization of the canal. Great Britain escaped her liability in that respect in the Hay-Pauncefote treaty and imposed the entire burden upon the United States, and in discharge of that burden the United States is compelled to incur this expense annually, and will keep on incurring it as long as anyone in this room is alive, and perhaps long afterwards. Now, I only make this observation preliminary to this question. Why have you excluded that cost of $10,000,000 to $15,000,000 a year in speaking of the economic cost of maintaining the canal and operating it?

Prof. JOHNSON. I have, as you observed, been scrupulously careful to draw a sharp line between commercial and naval and military expenses, and have chosen to consider the expenses of operating the canal as a commercial highway, as a commercial expense to be borne by the commerce using the canal.

The CHAIRMAN. And it is for that reason that you ignored the other feature?

Prof. JOHNSON. Yes, sir.

The CHAIRMAN. Let me see if I understand you correctly. Did you say this morning that, looking back upon this entire project, the canal as an economic proposition offers no benefit whatever to the United States, and might just as well never have been built?

Prof. JOHNSON. No, sir; if I conveyed such an impression as that I am very sorry.

The CHAIRMAN. Did you not give your coauthor, Mr. Huebner, credit for saying that it might not have been built, or it would be better if it had not been built?

Prof. JOHNSON. One of the Senators observed that if the facts brought out in Dr. Huebner's report had been known 10 years ago, as I remember, the canal might not have been authorized by the American people.

The CHAIRMAN. You did say that the building of this canal and its operation would not appreciably effect a reduction of railroad rates in the country, did you not?

Prof. JOHNSON. I did say that; yes, sir. I want to say that I also said that I think it is entirely possible for the people of the United States to secure the full benefit obtainable from the Panama Canal if they chose to obtain it

The CHAIRMAN. Doctor

Senator BRANDEGEE. Please finish that statement.

Prof. JOHNSON. That it is entirely within the power of the United States to secure from the Panama Canal all the benefits that can be obtained from the canal.

The CHAIRMAN. I am reading from a book of which you are one of the authors-

Senator SHIELDS. Mr. Chairman, in that connection-in connection with that statement that the building of the canal would not prob

ably reduce the transportation rates by rail, if I understand you, Professor, you also say it would not reduce the charges of transportation by water by way of the canal?

Prof. JOHNSON. Not necessarily.

Senator SHIELDS. And therefore the construction of the canal will not reduce materially the transportation rates from the Atlantic coast to the Pacific coast either by rail or by water?

Prof. JOHNSON. The construction of the canal will reduce the cost of transportation, that is obvious, between the two seaboards, but the rates between the two seaboards will depend, in my judgment, upon the policy followed by the United States Government in the regulation of the coasting trade.

Senator SHIELDS. I understood this morning-and I would like to know if I am correct about that-that you thought on account of the combination of shipowners that there would be no reduction when the canal was opened of the present rates to the west coast?

Prof. JOHNSON. I did not put it as strong as that. The reduction would not necessarily be large. I personally do not anticipate a large reduction in the rates of transportation for the fundamental reason that the rates by water as well as by rail are not fixed with reference to cost. The lowering of the cost of transportation does not affect the basis of the rates which are based upon what the shipper will, in the judgment of the carriers, pay for the services. The CHAIRMAN. I would like to put this question to you. I am reading from your book, entitled "The Elements of Transportation,' which you issued in 1909. I take this paragraph from page 246:

The canal and industrial progress.-In considering the influence of the Panama Canal the fact should be kept in mind that commerce is but incidental to industry. The great service of the canal will be that of assisting in the development in the industries of the Pacific Coast States, of the middle western and southern sections of the country, and of the manufacturing New England and Middle Atlantic States. While the canal will be used by ocean carriers, its main benefits will accrue to the farmers, manufacturers, lumbermen, and miners in different parts of our richly endowed country.

Are those your views to-day?

Prof. JOHNSON. Those are my views to-day.

The CHAIRMAN. Now, I call your attention to an extract from your book on "Railroad Traffic and Rates," published, I think, in the same year, perhaps

Prof. JOHNSON. Two years later.

The CHAIRMAN. 1911. I am reading from page 356, under the heading "Water competition as a factor in rate making," as follows:

The influence of water competition upon the policy and practice of railway rate making, though less general and less controlling now than formerly, is still a factor of much effect in several parts of the country; and the practical certainty of a general improvement of the inland waterways of the United States indicates that water competition will be more potent in the future than it is at the present time.

The effects upon railway rates of the rates and services of the steamship lines operated along and between our seaboards are far-reaching. The wide range of the influence of ocean competition upon railway rates is well illustrated by the fact that the export and import traffic between the central part of the United States and Pacific foreign countries must be carried by the transcontinental railroads to and from our west coast at rates fixed by the competition of the route via our eastern seaboard and the Suez Canal.