Anxiety to dig dirt, the usual American desire to get things done right off, was the dominating idea in 1904.  So, while Mr. Wallace kept up the surveying which would aid in determining the center line of the canal, as well as the choice of a type, he also pushed excavation operations in the Culebra cut, rehabilitating old French excavators and increasing the working force..

He had found 746 men at work with hand tools in the Culebra cut.  His first inspection convinced him that the French machinery should be abandoned as fast as modern American equipment could be secured, and he expressed the opinion that two years would be required for preparations.  At that time the main track and sidings of the Panama Railroad totaled 78.82 miles, while the trackage left by the French in the cut and elsewhere was 176.2 miles.  The immediate substitution of heavy American rails for the Belgian type, and the double-tracking of the main line, were among Mr. Wallace's first decisions.  Rolling stock and locomotives were ancient in design and in a bad state of repair, but he rescued from the jungle and overhauled 58 locomotives and 980 dump cars.

I required stout hearts not to quail before the Isthmus of 1904.  Not only the traditional unhealthfulness, but the wretched condition of the railroad, after fifty years of noncompetition, the long distance from the base of supplies, the miserable living accommodations in Colon and Panama, where there were no sewers, no water and unpaved streets, into which was thrown all refuse and garbage; and the vexatious red tape that surrounded all government enterprises, made a situation that weaklings no sooner touched than they returned precipitately to the United States.

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But, however staggering the obstacles were, the American people had set themselves the task of succeeding where the French had failed, to do it at any cost and in spite of all opposition, be that opposition in the form of disease, red tape, hardship or any other limitation.

To take care of the increasing number of workers, that every ship was bringing to the Canal Zone, was the  most pressing problem.  The interest of the whole world had been stimulated by the rejuvenation of the canal project by the Americans, with the result that restless spirits everywhere began bending their steps toward Panama.   Men of excellent character in the United States also came, attracted by the pay and the romantic nature of the undertaking.

The houses left by the French were inhabited by natives or buried in the jungle growth.  They necessarily were run down but could be made habitable once the carpenters and lumber to do the work were at hand.  These, however, like everything else, were two thousand miles away with a spider web of red tape over them that paralyzed speedy movement.  In his year of service, Mr. Wallace repaired 357 of these houses and built forty-eight new ones, still leaving the problem of housing employees unsolved.   During that time more than 9,000 workers came to the Canal Zone, but the migration back to the United States, or adjacent islands and countries, was heavy.

Col. Gorgas had urged the prompt sanitation of Colon and Panama, and early in the American occupation the construction of sewers, waterworks, and paved streets was begun.  The Americans advanced the money for these improvements on a plan of taxes that at the end of fifty years from their completion will repay the United States and turn them over to the respective cities.

One of the dredges left by the Slaven brothers was found to be, after twenty years, in excellent condition and was put to work in Colon harbor.  The twenty miles of track in the Culebra cut, occasioned derailments and wrecks with exasperating frequency until relaid with heavier rails, and this mileage was increased by an addition of fifteen miles during the first year.  Machine shops existed at Colon, Matachin, and Gorgona where, when the jungle had been cut away, facilities were found for repairing machinery and rolling stock.

Mr. Wallace made his headquarters in Panama in a building that formerly had been occupied by the French director-General.  It is now the American Legation.   The disbursing officer, sanitary officer, engineering parties, and clerical forces were centered in Panama, but a site for an American administrative town was selected at the foot of Ancon hill just outside of Panama.

French towns at Culebra, Empire, and Gorgona were rehabilitated and systems of sewers and waterworks begun.  There were settlements at Matachin, Bas Obispo, and Colon.  Accommodations were of the crudest description.  Powder boxes served for Morris chairs, furniture was scanty and of ancient design, tropical insects made life a misery, servants were worse than indifferent, there were no baths, no running water in the houses, and that which was used sometimes was caught from roofs on which the buzzards roosted, the native foods had to be eaten, and ice was a luxury that only occasionally could be obtained from the railroad ice factory at Colon.

Each ship that brought workers to the Canal Zone invariably carried the same or others back.  Yet a percentage stuck and accepted the undesirable conditions gracefully.  A few had vision enough to see that our great government would rectify everything if only given time.  Others realized that the canal never would be built if the workers expected soft conditions right at the start and they accepted their sacrifices of comfort as a national necessity.

To add to the difficulties of the early days, magazine, newspaper, and other critics exploited the imperfections of the employee's environment from a hypercritical standpoint, whereas the government was bending its energies to the utmost to bring conditions to par.  Many of these critics were inspired by a preference for the Nicaraguan route, others simply were anti-Roosevelt and lambasted anything he championed, while still others were the hirelings of special interests that opposed any canal.   These critics reached the climax of absurdity when complaint was made that men living only nine degrees from the Equator ought to have hot water baths.  There was no letup until the canal was so far advanced that it stood as a self-evident refutation of their dismal prophecies.

Every defect they pointed out had been noted long ago by the officials and was remedied in time more handsomely than any private contractor would have matched.   The Americans were not attempting a pink tea performance in Panama and the torrents of abuse that were heaped upon the administration constitute the most disgraceful feature of the entire project.

Mr. Wallace came from a highly organized railroad system to an absolutely unorganized enterprise two thousand miles from the base of supplies.  Government red tape to such a man was exasperating to the last degree.  It was necessary for the government to advertise for bids, and this constituted the principal delay in securing orders, but barring that procedure, it has not been shown that a private contractor could have placed machinery and supplies on the ground with much greater celerity than the government.

The over-riding idea was to make a showing.  President Roosevelt himself had set the pace for quick results.  Congressmen who were expected to vote for canal appropriations frequently could not be impressed that the project was worth while if the dirt was not flying.  Mr. Wallace therefore concentrated energies on excavation work that more profitably could have been spent on preparations.  He got out 741,644 yards in his year, a creditable showing with the equipment at hand.  The first steam shovel was installed on November 11, 1904, and was No. 101, of the 70-ton class.  It is still in use in the canal.  On December 2, 1904, the second steam shovel was erected, No. 201, of the 95-ton class.  By June 1905, there were nine steam shovels at work, and the last French excavator was abandoned on June 16, 1905, the day Mr. Wallace left the Canal Zone as Chief Engineer.

All engines, cars, steam shovels, and other large equipment had to be brought to the Isthmus "knocked down."  The cost of putting together a locomotive of the large type was $820 and for erecting a steam shovel of the 95-ton class, the cost in the Canal Zone shops, is $770.  This work, with the repair work and original steel and iron construction work, required boilermakers, mechanics, blacksmiths, and machine shop workers of all kinds.  Recruiting offices were opened in the principal American cities to engage them and sometimes conditions in the Canal Zone were pictured a little rosier than the fact warranted.

As Secretary of War, William Howard Taft had the immediate direction of Panama canal affairs.  Every time he touched the project he manifested the high order of the ability that made him so admirably equipped for the presidency later on, although the average canal employee will not agree with this opinion, because the Secretary actually acted as if the Republic of Panama was a sovereign power, entitled to consideration and concessions in its complaints against the Commission.  The canal employees were coddled by President Roosevelt, and besides, have no surplus of brotherly feeling at all for the Panamanians, so that Secretary Taft's considerate treatment of them to many appeared a partiality at the expense of the canal employees.

Almost coincidental with the beginning of American operations, Panama began to feel how absolutely sovereign it had made the Americans right in the heart of the republic.  The Canal Zone was being managed with complete independence from the republic, as much so as the Republic of Costa Rica to the north.

Gov. Davis had corresponded at length with the officials of Panama, over the question of sovereignty, the jurisdiction of the courts, the issues of the tariff, postage, customs, and currency, until it was deemed advisable for Secretary Taft in person to visit the Isthmus to arrange a working agreement on these differences.

Secretary Taft arrived on November 27, 1904, and remained until December 7th.  He was assisted, in the conferences that were held in Panama, by William Nelson Cromwell, whose intimate knowledge of all Panama affairs made him a valuable adviser.   On the question of sovereignty, which seemed to be especially delicate to the Republic, the treaty was peculiar in that it did not cede the Canal Zone finally to the United States, but gave the Americans all the powers they would exercise "if they were sovereign."

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Panama contended that final sovereignty was vested in it, and Secretary Taft, being after the substance rather than the form, did not quibble over this distinction without a difference, but later expressed the opinion that Panama sovereignty over the Canal Zone was a "barren ideality."  Certainly it has proved so to be.  The issue passed off in talk.

An agreement was reached on the currency question whereby the United States would accept the money of Panama at one half the value of American currency, that is, the peso, worth intrinsically only forty cents, would be exchanged with United States money at fifty cents, although it was in size and face value the same as our dollar.   The same system was in vogue in the Philippines.  To meet the needs of the canal paymaster, the circulation of pesos was increased from 3,000,000 to 4,000,000.   Out of this grew the custom in the Canal Zone as referring to United States currency as "gold" and to Panama currency as "silver," and in the stores articles are priced in both currencies.  The physical advantage of a high-value currency is demonstrated on the isthmus, because the weight and size of the Panama silver money makes it cumbersome.

Stamps were selling in the Canal Zone for slightly less than in the post offices of the republic, with the result that the republic was losing revenue.   Secretary Taft settled this just complaint by arranging for the Canal Zone to buy its stamps from the republic for sixty per centum of their value, the forty per centum remaining to be the Profit of the Canal Zone offices.  The stamps are surcharged "Canal Zone," which is the official geographical designation of the territory through which the canal runs.

On June 24, 1904, President Roosevelt had made the Dingley tariff applicable to the Canal Zone.  This worked badly and Secretary Taft agreed to have the order revoked, so that that the Canal Zone ever since has enjoyed the freest of free trade.  All other issues were cleared up without the United States yielding any freedom of action as to important materials, executing justice, operating ship terminals and supplying canal employees with the necessaries of life through commissaries and hotels.

While Secretary Taft and Chief Engineer Wallace were working in their spheres, Gov. Davis was instituting the various departments of civil government which today are noted with admiration by the tourist.  Chief of Police Shanton was engaged in ridding the Canal Zone of its bad men and bringing a population long without any restraint under the control of regulations that the Americans considered essential to orderly existence.  So far as practicable, the laws to which the natives were accustomed, which had been handed down the centuries by the Spaniards, were adopted in taxing lands and other property, but the court procedure was American with the exception of the jury system.  The judges acted as juries.

From the first Mr. Wallace had kept close tab on the cost of excavating dirt in the Culebra cut.  The type to be chosen being still an unknown factor, he was in some measure working in the dark, except that the material removed would be useful for any type, provided the dumps were selected so as not to later get in the way of any route chosen.  In 1912, the Americans to to remove a French dump near Culebra to prevent its slipping down into the cut.  He finally announced a unit cost of 50 cents a cubic yard for either a sea-level or lock-type canal.

Messrs. Parsons and Burr, the engineering committee of the Commission, after a personal inspection of the Canal Zone, and taking Mr. Wallace's estimate, recommended a sea-level type of canal.  It was to cost, exclusive of improvements in Colon and Panama, and civil government in the Canal Zone, $230,500,000.  Mr. Wallace had caused surveys to be made for a lock type of canal, and he estimated the cost of such a canal, with a summit level of 60 feet elevation, to be $178,013,406; with a summit level at 30 feet elevation, the cost would be $194,213, 406.

All three estimates missed the real cost of the respective types widely.   Mr. Wallace's estimate of 50 cents a yard for excavation was far too low.  As a matter of record, the cost reached 82 cents under Chief engineer Stevens, rose to 91 cents under Chief Engineer Goethals, and only once fell below the 50-cent estimate, in March, 1911, when it fell to 47 cents a yard.  The average for the period from 1904 to 1911 was 88 cents.  The mistake was made because solid rock underlay the surface, necessitating continuous blasting before it could be handled by the steam shovels, while the working day, which had been ten hours, under Mr. Wallace, was cut to eight hours under Messrs. Stevens and Goethals, and wages rose sharply as well.

Persistent and vigorous complaints from Mr. Wallace, about the hindrances of governmental methods of methods of doing business, found a receptive ear in President Roosevelt.  The Executive was just as eager to make the dirt fly as Mr. Wallace, and readily agreed that a Commission of seven members was an awkward and ill-working management for the peculiar conditions of the job at Panama.  Accordingly drastic action was decreed.

Secretary Taft, on March 29, 1905, asked the entire Commission to resign.   His explanation exonerated the members of any blameworthy administration, but indicated that the Commission had been found an unwieldy body.  Mr. Wallace was in Washington, and the President and Secretary Taft followed his suggestions almost to the letter, including the one that the Chief Engineer be made a member of the Commission.

On April 1, 1905, the second Isthmian Canal Commission to be appointed by President Roosevelt was announced.  Heading it was a new figure in canal affairs, Theodore P. Shonts, who played a decisive part in the enterprise for the ensuring two years.  The personnel of the new Commission was:

CHARLES E. MAGOON, Governor of the Canal Zone,
JOHN F. WALLACE, Chief Engineer,

There was the same number of Commissioners, but the first three were named an Executive Committee which virtually should exercise the powers of the entire body.  Thus power was taken from seven and concentrated in three members.  Mr. Shonts was to be in the charge of the Washington office and Messrs. Wallace and Magoon on the Isthmus.

Again following Mr. Wallace's suggestion, the directory of the Panama Railroad was reorganized, the United States on April 15, 1905, for the first time electing the members.   Mr. Shonts was made president and Mr. Wallace, vice-president and general manager.   This would further concentrate control in the Chief engineer over a vital factor in canal construction.

These changes and other matters kept Mr. Wallace in Washington from March 29th to May 24th, about two months.  The employees in the Canal Zone naturally caught something of the spirit of unrest which attended the reorganization of the Commission, and, of course, the hostile press was playing up everything that could embarrass the administration and damn the project.  Then the yellow-fever epidemic broke out in April, 1905, to add a terrible phase to life on the Isthmus.

Having secured every change he desired, Mr. Wallace left Washington with expressions of cordial appreciation to the President and his Secretary.  He arrived at Colon on June 2d, and the White House believed that a crisis in the career of the project had been passed successfully.  They looked forward to smooth sailing with every confidence.

Their surprise and chagrin, therefore, was immeasurable when Mr. Wallace cabled Secretary Taft, on June 8th, asking that he be recalled to Washington for a conference.   He intimated that the conference might result in his resignation as Chief Engineer.   After a disheartened interview with the President, Secretary Taft cabled him to return.  At the same he cabled Gov. Magoon for a confidential view of Mr. Wallace's conduct.  Gov. Magoon expressed the opinion that Mr. Wallace was quitting for a better salary, the yellow-fever epidemic was raging, the wife of Mr. Wallace's secretary had died from the disease, and Mr. Wallace believed that he had had an attack of it.

Without intimating that he was leaving for good, Mr. Wallace quietly packed up or sold off his household furniture and sailed from Colon on June 16.  The employees scented some important movements and the subordinate officials felt restrained from decisive action, although Mr. Wallace left authority to that effect with the engineer next in rank to him.

Gov. Magoon cabled that the working force, already shaken by the yellow-fever epidemic, were further demoralized by the belief that the Chief engineer was seeking a softer berth.   Every ship that left Panama at that time was carrying capacity passenger lists, and only the limited number of vessels prevented a wholesale exodus.  It was truly a time that tried men's souls.

President Roosevelt and Secretary Taft then decided upon a drastic course toward Mr. Wallace, as a means of reviving the morale of the canal workers, and also of bringing the American people sharply to a realization that the canal project was in peril, through a display of weakness in the face of danger, that would make our experiment in Panama an international disgrace.

Secretary Taft, with William Nelson Cromwell, met Mr. Wallace at the Manhattan Hotel in New York on June 25th.  Secretary Taft listened to his reason for resigning, which in the main was that he had under consideration a position that would carry with it a remuneration of approximately $65,000 a year.  One of the peculiar conditions of the new employment was that under no circumstances was he to return to the Isthmus, but that he would gladly remain a member of the Commission resident in the United States.  He made some side criticisms to the effect that Col. Gorgas was incapable of handling the yellow-fever epidemic, that government red tape was distracting, and conditions generally were such as to make the new employment look attractive.

Secretary Taft did not conceal his disappointment in Mr. Wallace's course.  He began by reviewing how the government had taken him from a position paying $15,000 a year to make him chief Engineer of the canal at $25,000 a year; how that the formidable obstacles to be met, the supreme necessity of a canal to the nation, made it a patriotic work for any American and an honor to be placed at the head of the greatest enterprise of the age.

"For mere lucre," Mr. Taft continued, "you change your position overnight without thought of the embarrassing position in which you place your government by this action."

Secretary Taft then reviewed how the Commission had just been reorganized to meet Mr. Wallace's wishes, and every change had been approved by the Chief Engineer.  He closed by demanding the immediate resignation of Mr. Wallace.  This came the next day, and was made public on June 28th, with Secretary Taft's hot rebuke, which, in the Canal Zone, had a most salutary effect.  It put an entirely new complexion on their work to be told that the nation expected every man to do his duty, and they were not down there for the money they could make, nor were they expected to leave because of the hardships they would meet, but that the object of their exile was to give the nation something vital to its welfare.  The desertions began to diminish at once, and the announcement on June 30th, that John F. Stevens, a Hill man, had been appointed Chief Engineer, further strengthened the morale of the canal organization.

Theodore Roosevelt never appeared to better advantage as a supremely able executive than during this crisis in the history of the canal.  Before his enemies, and the canal's enemies could shout their glee at the demoralization of the enterprise, he had closed the breach with the selection of another great Chief Engineer.  Even if the situation had been brought about by interests with sinister designs, it could not have been met with a more magnificent courage, and the canal project was strengthened by the ordeal.