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CHAPTER III.

THE QUESTION OF GUARANTEE.

EANWHILE, acting upon the unanimous report

of a committee of the United States Senate in favour of the proposal that the United States Government should take the matter up as a national enterprise and should build the canal, bills were introduced into the Senate and the House of Representatives, and duly passed by a committee in each house1 to which they were referred, providing for the acquisition of the shares of the Construction Company, and the Maritime Canal Company (under a financial arrangement with a new Construction Com

'In the report of the Senate committee on foreign relations, on the pending Bill, it was stated that when the Canal Company, after prosecuting part of the work, ran short of funds, "capitalists from Europe made propositions to the company, which are yet pending, to enter into an agreement for the completion of the canal on terms far more liberal to its present owners than any that have been offered by the United States;" and it was maintained that, "if action by Congress is delayed unreasonably," the company would be compelled either to abandon its concessions and lose the money already invested by it, or to accept the offer made by the foreign capitalists. On this ground it was urged that Congress should act, in order that the canal may not be placed "under the control of a European government" or "in the power of European capitalists."

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pany and the Maritime Canal Company), by means of a Bill which was introduced in the Senate on the 10th December, 1894, and which passed on the 25th February of this year. The one before the House of Representatives failed to pass. The Senate Bill marks an entirely new departure of a far-reaching character in the policy of the United States towards the whole question of encouragement of public works by state aid, whether within or without their territories. It provides for the guaranty of $70,000,000 of bonds of the Maritime Company, bearing interest at 3 per cent., payable quarterly, the principal to fall due in not less than ten, nor more than thirty years. Each bond is to bear the following guarantee:-" The United States of America guarantee to the lawful holder of this Bond the payment by the Maritime Canal Company of Nicaragua of the principal of said Bonds, and the interest accruing thereon, as it accrues." An additional $30,000,000, is to be issued without guarantee. It leaves $70,000,000 of the entire capital stock of the company in the ownership of the United States, which will hold a mortgage lien on all the property of the Canal Company. $6,000,000 is to go to Nicaragua, $1,500,000 to Costa Rica, and the remaining $22,500,000 is to be used in extinguishing former issues of stock, and towards the construction of the canal.

Each bill provides for a maximum sum of $4,500,000, which may be reduced, on accounts being rendered, by the Secretary of the Treasury, as the amount estimated as having been expended in construction and for machinery,

' Vide Appendix No. VIII.

houses, railroad, and telegraph lines, docks, wharves, breakwater, and sea-wall, and other expenditures by the company. The outstanding obligations of the Maritime Canal Company, which both bills require them to take up, and extinguish, are as follows:

The $12,000,000 of stock issued to the owners of the concessions in payment for their property is struck out, even on the terms of the Senate Bill, which provides $11,500,000 to pay $23,068,500 of reported outstanding obligations.

The interests of the United States Government are safeguarded by various stringent regulations and the previsions of the bill are well devised for the purpose of preventing any misapplication or waste of the money. The Secretary of the Treasury is to have general supervision of the project, and a board of fifteen directors is to have immediate charge of the work, ten of whom will be elected by the president, with the advice and consent of the Senate, and no two from any one State. An amendment to the bill of great significance provides that all material and supplies of every sort shall be purchased in the United States, "except such material and supplies

as may be grown or produced in Nicaragua or Costa Rica," or not grown or produced in the United States. Truly an extraordinary measure for the government of a great country to adopt.

The commission referred to above consists of three engineers, whose duty it is to "ascertain the feasibility, permanence, and cost of the construction and completion of the Nicaragua Canal," who are now employed in carrying out their mission in Nicaragua. The commission is to visit and personally inspect the route of the canal, examine and consider the plans and profiles, prisms, and specifications for its various parts, and report thereon to the president on or before November 4th next. The members are Colonel W. Ludlow, U.S.A.; Civil Engineer Mordecai T. Endicott, U.S.N.; Civil Engineer John Noble, of Chicago. The commission is accompanied by Mr. Menocal, unofficially. It is important to note, however, that if the terms of the bill be considered unfavourable, it is by no means certain that the Construction Company is bound to accept it.

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As regards its political aspect, confidential communications on the subject are said to have passed between our own and the United States Government, and that no objection had been raised to the action being taken. any case it would seem that, under the Clayton-Bulwer Treaty of 1850,' any connection between the Atlantic and Pacific Oceans, by ship canal through the State of Nicaragua, will have to be neutralized, in the same way as was the Suez Canal in 1888.

In the course of the last debates in the United States Senate and House of Representatives, the questions were raised as to whether a guarantee such as proposed is constitutional and politic, and whether the canal was physically possible.

It was argued that the United States Government has not the power to grant a subvention, inasmuch as the law, while it does not prohibit, nowhere contains provision for sanction, whether within or without United States territory. It was also maintained that the only example of a public work thus supported is the Union. Pacific Railway, which lies within United States territory and is a purely American work to carry American internal trade. The precedents quoted by Mr. Morgan-the Gadsden purchase from Mexico of a vast territory, under the treaty of Guadalupe Hidalgo, and the purchase of Louisiana-are not apposite, because in one case the United States Government had possession, and in the other possession was delivered, both being bonâ fide transfers of real estate between independent and sovereign governments of the world. It is evident that the proposed guarantee cannot be covered by any such question of purchase.

The history of the Pacific Railway was quoted against the grant of a guarantee, and with some effect, because the "subvention" given in that case has been by no means a remunerative transaction for the United States Government, for the principal, amounting to £12,800,000 ($64,000,000), which was guaranteed, has never been paid, and the United States has, moreover, paid out as