army and the Americans that followed in its wake. The army was rapidly increased, until during the year 1900 there were in the Archipelago upward of 70,000 troops distributed through the islands in 600 posts. This presented an opportunity for the sale of liquors and other goods likely to be purchased by soldiers, which continued for two years or more. The army has now been reduced from 70,000 men to a little more than 15,000 Americans, and the number of posts has been reduced from 600 to a few more than 100. In addition to this the Commission has passed an act forbidding the sale of liquor within 2 miles of an army reservation, which it is said has much interfered with the canteen trade. The enormous profits which were reaped by the American trading companies (of which there are some half a dozen in Manila), growing out of the demand produced by the presence of 70,000 soldiers, fell off rapidly as the changes which I have indicated took place, and to this, more than any other one cause, is due the interference with large returns upon much of the American capital invested in the islands. I venture to say that the opportunities which the American merchants have had for making quick and large profits out of the American soldier has had a bad effect upon American methods of doing business and upon the attitude of most of the American merchants in these islands. It has made them feel independent of the Filipino demand for American commodities. It has lessened the necessity for effort on their part to create a demand among the Filipino people for those articles which the United States can make and ought to sell in these islands. The natural hostility of the American business men growing out of the war was not neutralized by a desire and an effort to win the patronage and good will of the Filipino. The American business men controlled much of the advertising in the American papers, and the newspapers naturally reflected the opinions of their advertisers and subscribers in the advocacy of most unconciliatory measures to the native Filipinos and in decrying all efforts of the government to teach Filipinos how to govern by associating the more intelligent of them in the government. One of the first principles of good business success is not to antagonize unnecessarily those whose patronage you seek and must depend on for the building up of your business. The number of Americans that the American merchants or any merchants in these islands can count upon for business demands is never likely to exceed 20,000. The number of Filipinos whose trade might make a most lucrative business in these islands is 7,000,000. It would seem to be the wiser policy on the part of the American merchant to cultivate the good will of those potential patrons rather than through the press and in society and in all other ways to antagonize them, to give the impression of bitter hostility and racial prejudice toward them too deep to be overcome. Neither the German nor the English nor even the Spanish merchants have allowed WAR 1903-VOL 5- -4

themselves to be put in this attitude. Indeed, there are a few Americans who have pursued a different policy with respect to the Filipinos, to their profit. I venture to predict that as the American business men of these islands become more conservative, as more capital comes in, the utter fatuousness of the present attitude of a majority of the American business men of to-day of these islands will become apparent. There is an immense field here for the sale of American goods.

The Filipinos are imitative, take quickly to new things, may easily be taught, as their wealth shall grow, to regard American products, which are now luxuries to them, as necessities. The sale of cotton goods is almost wholly with the English houses to-day. The handling of hemp, which is the largest export of these islands, is almost wholly confined to foreign houses. There is not the slightest reason why this business should not be done largely by Americans, especially in view of the fact that the United States is the largest purchaser of hemp in the world. It requires the investment of a very considerable capital, the construction of warehouses in the various hemp provinces, and the establishment of friendly relations with the hemp growers and buyers in each province. The American business man in the islands has really, up to this time, done very little to make or influence trade. He has kept close to the American patronage and has not extended his efforts to an expansion of trade among the Filipinos. Until this is done and more American capital is brought here for the purpose, we can not hope that the imports from the United States to the islands will be increased in very large proportion.

PROPOSED OFFICIAL INSPECTION AND CLASSIFICATION OF HEMP.

About the beginning of this year complaints reached the Commission that the hemp being exported from the islands was of very inferior quality and that there was fraud in its packing. The Secretary of Agriculture of the United States recommended investigation and action, suggesting that if the Manila hemp continued to be of such poor quality, purchasers and users of fiber would be driven to other fibers and countries. It was recommended that the hemp exported be officially inspected and classified and carry the mark of the Government upon it to indicate its quality. A bill was drawn providing for official inspection and classification, and it was submitted to discussion in a public session. The public discussion satisfied the Commission that little if any good could be brought about by such legislation. Everyone who came to discuss the bill was opposed to it as it was drawn. It was insisted that the only thing possible was to have an inspection which should prevent false packing, but that governmental classification would be not only impracticable but a serious obstacle to business. It further developed that so far as fraud was concerned. the purchasers in America were completely protected by the ordinary

terms of purchase which enabled them to reject the hemp or to recoup at once from the price for any failure in quality. When the amended bill was drawn providing only for the inspection into the packing and for the punishment of false packing and of fraud in baling, a representative of the American hemp purchasers stated that the bill would do them no good because it was not radical enough. So far as we were able to determine, the bill which was desired by the American merchants was a bill which should forbid the exportation of hemp of poor quality, and should impose such restrictions on the method of raising and cleaning hemp as to insure the production of only good fiber at a reasonable price. The discussion showed that much poor hemp was exported for use in making paper and hats in Japan and in other countries. Because of the high prices paid for poor hemp, the faulty cleaning of hemp was much more profitable than the preparation of the finer qualities. Inferior qualities of hemp are produced by using a serrated knife in stripping the fiber. Men, women, and children can use a serrated knife for hemp cleaning, whereas the knife with the even blade requires the strength of an adult man. A law forbidding the use of a serrated knife in cleaning hemp, or preventing the export of hemp thus cleaned, would deprive many people of a means of livelihood in the islands and would savor much of paternalism; nor is a law of this kind necessary if purchasers use proper discretion in buying the quality which they desire. The object of the persons asking legislation, when analyzed, seems to be rather to secure a law which shall hold the price of good hemp down. The bill proposed has, therefore, béen allowed to lie on the table, and it is unlikely that any further action will be taken in the matter. The high price of hemp always increases the production of inferior quality. This is a natural economic result; if the dealers do not desire to pay high prices for the inferior quality, their refusing to do so will soon bring up the quality of hemp. The report of the committee on the bill, consisting of General Wright, is hereto appended, and marked Exhibit J.

SUGAR.

It will be observed that the value of the sugar exports from the islands for the fiscal year ending June 30, 1903, was $3,955,568, an increase of $1,194,136 over the value of the exports of sugar for the fiscal year ending June 30, 1902. This increase was the natural result of a betterment of conditions as to tranquillity. More than that, the planters of Negros, where the increase chiefly was, had used greater efforts than the landowners of the other parts of the islands to import carabao to take the place of the carabao destroyed by the rinderpest. The increase in the exports, however, should not be taken as an evidence of prosperity in sugar production. I append a petition of the Agricultural Society of Panay and Negros, marked "Exhibit K," in

respect to the production of sugar in the Philippines, together with a statement made by the collector of customs at Iloilo, Colonel Colton, who has looked into the matter with great thoroughness, and whose opportunities for exact information are great, because Iloilo is the port through which almost all the sugar in the islands is exported. The statement of Colonel Colton is marked "Exhibit L." I also append a statement made by Governor Wright from data furnished him on the same general subject, marked "Exhibit M."

It may be deduced from these sources of information that the sugar production was first introduced into the Philippine Islands in the year 1856, and that the first official record of exportation is of the year 1859, when 5,427 tons of raw sugar were exported from Iloilo. In 1869, 7,344 tons were exported; in 1879, 47,625 tons; in 1889, 112,007 tons; in 1899, 154,462, and the largest exportation in any one year was in 1892, when 165,897 tons of sugar were exported. In 1901 the exportation fell to 34,500 tons. In the early years the sugar production was carried on by the use of wooden rolling mills worked by cattle, a process resulting in a loss of from 40 to 50 per cent of the sugar. Some of these mills are still in use, but most of them have been supplanted by steam mills which extract from 3 to 7 tons of juice per day with a loss of from 20 to 40 per cent of sugar. The sugar produced is classified as follows: Class No. 1 contains 88 per cent of saccharine; No. 2 contains 85 per cent; No. 3, 81 per cent, and damp 70 per cent. The various qualities of sugar are produced in about the following proportions: No. 1 quality, one-fourth; No. 2, three-sixteenths; No. 3 and damp, nine-sixteenths. Sugar polarizing as bigh as 92 per cent is produced by the old wooden mills in some localities of Panay. The expense of production was a very large percentage. Under ordinary circumstances Negros should produce 150,000 tons and Panay 50,000 tons of sugar annually on land now under cultivation. Those who have had experience in the business assert that with suitable machinery, transportation facilities and capital, the production could be doubled without extending the area of land under cultivation; that at present there are no means of transportation in Negros except for sugar brought to the market by lighters from the estates of the owners, from 5 to 14 miles, depending solely upon the condition of the roads, which is usually bad. The actual cost of producing sugar which is marketed at Iloilo, per ton, is as follows: Tilling and planting, $22; cutting and carrying to mill, milling, bagging and shipping, $18, and delivering, $6, making a total of $56 Mexican. These figures exclude material items like interest, investment, taxes, or rents, which are hard to estimate. The present selling price of sugar in the Iloilo market, based on the price in foreign markets, is about $64 Mexican per ton, which allows little or no profit on the sugar from the most favorably located estates, and is considerably less than the cost of production on the interior estates.

The following table shows the quantity and value of sugar exported through the port of Iloilo, by fiscal years, since American occupation:

At first glance it would seem from the returns of 1893 that the sugar planters were subject to congratulations upon the substantial increase both as to price and quantity of their product, and the apparently improved conditions. As a matter of fact, however, owing to the increased cost of labor and the extraordinary expenditure for animals to replace those killed by the rinderpest, the planters are more deeply in debt at the close of the 1903 season than at any previous time in their history, and if it had not been for the low-ruling rate of exchange enabling buyers to pay more in Mexican currency on practically the same gold prices as last year, a large percentage of the planters would have been entirely ruined and compelled to abandon their estates. The planters have been steadily losing ground since 1899, and have only been encouraged to continue the operation of their estates by the hope each year that their products would be admitted to the markets of the United States at a much more favorable rate of duty than is now imposed. The shipments to the United States have been very small; 71,000,000 pounds of sugar were exported last year in vessels which cleared for the Delaware Breakwater "for orders." A very small proportion of this was shipped into the United States, the larger portion being carried into Canada or England, and all the sugar entering the United States, except one cargo which was allowed to enter free during the brief period when there was no import tax on imports from the Philippine Islands, resulted in a heavy loss to the shippers. The islands of Panay and Negros are among the most thickly populated, and the inhabitants and business interests depend directly or indirectly upon the sugar industry, which is at this time in an exceedingly precarious condition, and unless something is done by Congress to relieve the situation there must be a total industrial collapse in those provinces. Were there admitted to the United States three or four hundred thousand tons-and there is no likelihood that in the near future the exports of sugar from the islands to the United States will reach any such sum-it would not have any effect upon the price of sugar in the United States, but it would greatly increase the prosperity of the two important provinces named. Sugar is also raised in Pampanga, Cavite, and Laguna, but not so successfully