The Panama Canal

by Frederic J. Haskin

When the United States took over the road someone described it as being merely "two streaks of rust and a right of way." While the Panama road as acquired by the United States in its purchase of the assets of the new French Canal Company might have been all that this phrase implies, it was none the less as great a bargain as was ever bought by any Government, and probably the greatest bargain ever sold in the shape of a railroad. It was not the rolling stock that was valuable, nor yet the road itself; the real value was to be found in the possibilities of the concession. Not only was this road destined to render to the United States a service in the building of the Panama Canal, worth to Uncle Sam a great many times more than its cost, but it was also destined to yield a net profit from its commercial operations which in 10 years would amount to double the price paid for it. Since the Americans took it over it has been yielding net returns ranging from a million and a quarter to a million and three-quarters dollars a year. In these 10 years it has brought an aggregate profit of some $15,000,000 into the coffers of the United States.

While $7,000,000 may have been a high price, judged from the standpoint of the physical value of the road, it was a very reasonable one, indeed, as compared with the price paid for it by the new French Canal Company. This company, which sold it to the United States for $7,000,000, paid the Panama Railroad Company $18,000,000 for it 23 years before. When the French Canal Company decided to undertake the building of the canal, it found that the Panama Railroad Company held concessions that were absolutely necessary to the construction of the canal. The Colombian Government had granted the company the concession to complete the road in 1849, and had agreed that no other interoceanic communication should be opened without the consent of the railroad. This gave to the railroad company the whip hand in trading with the canal company and it was able to name its own price.

When the United States wanted to buy the rights and properties of the new French Canal Company the shoe was on the other foot. There was only one buyer—the United States; and it could choose between the Panama and Nicaragua routes. If the United States did not buy the property its principal value would have been what it was worth as an uncertain prospect that at some future time a second Isthmian canal might be built. That is why the United States was able to buy from the French for $7,000,000 property that they had bought for $18,000,000.

After the United States acquired possession of the railroad, one change after another took place—now in the location, now in the rolling stock, now in directorate, and again in location—until almost all that remained of the original road was its name. It is now built almost every foot of the distance on a new location and the permanent Panama Railroad is a thoroughly modern, well-ballasted, heavy-railed, block-signal operated line of railway, built along the east bank of the Panama Canal from the Atlantic to the Pacific. Nearly half of the old right of way lies on the bottom of Lake Gatun, while the new line skirts that artificial body of water along its eastern shore, at places crossing its outlying arms over big bridges and heavy trestles. The construction of this new line was attended with much difficulty and probably no other road in the world has such a great percentage of fills and embankments in proportion to its length. One embankment, a mile and a quarter long and 82 feet high, required upward of 2,500,000 yards of material for its construction. The road is built about 10 feet above the water's edge, and more than 12,000,000 cubic yards of material was required to make the fills necessary to carry the road bed at this elevation.

When the United States took over the French property it was decided that the canal work and the railroad operations should be maintained as distinct activities. It was agreed that the Canal Commission should have the right to haul its dirt trains over the Panama Railroad, and in compensation therefor the commission undertook to build a new road to take the place of the old line, which was in the way of the completion of the canal.

The work of relocating the road was undertaken early in the construction of the canal in order that it might be completed by the time the old road had to be abandoned. It was built at a cost of approximately $9,000,000, or close to $170,000 a mile. It is interesting to note that the cost of this thoroughly modern railroad was only about a million dollars more than the cost of the first Panama road which has been built with rather less than usual attention to grades, and with small rails and light bridges. The relocated Panama Railroad was turned over to the railroad company in 1912.

How good a bargain the United States secured when it acquired the Panama Railroad is shown by the fact that during the 10 years of canal work the net earnings of the railroad company have reimbursed the United States for the cost of the old road and the construction of the new one, to say nothing of the invaluable aid rendered in the building of the canal.

The relations existing between the Isthmian Canal Commission and the Panama Railroad Company during the years of the construction of the canal were somewhat peculiar. The Panama Railroad Company is as much the property of the United States as the canal itself, yet the books of the two organizations were kept as carefully separate and distinct as though they were under entirely different ownership. The Panama Railroad Company, being a chartered corporation, under the terms of its ownership could engage in commercial business with all of the facility of a private corporation. Money received by the Isthmian Canal Commission from outside sources had to be covered into the treasury and reappropriated for distinct and special purposes. On the other hand, the railroad company could use its money over and over again without turning it back into the treasury. This advantage of operation was a useful one in conducting the road itself, and also in the construction of the canal.

There was another reason which led the canal authorities to advocate the maintenance of the two organizations as separate entities. This had to do with the concession rights. Under the terms of the concession of the railroad company the property was to revert to the Republic of Colombia in 1967, or at any earlier date should the company cease to exist as such. While most authorities agree that with the secession of Panama and the setting up of the new Government all of Colombia's rights in the railroad company passed with the territory, and while the treaty between the United States and the Republic of Panama expressly provides that the United States shall have "absolute title—free from every present or reversionary interest or claim" in the railroad, the Republic of Colombia contends that it possesses some rights with reference to the railroad and, not desiring to complicate matters, the canal authorities thought it best to live up to the letter of the treaty, in spite of Panama's express grant of title free from reversionary interest or claim.

While it was deemed desirable to have the Panama Railroad operated as a separate organization, it was equally important that it should be operated in a way that its interests always would be subordinate to those of the canal. It was decided that the best way to accomplish this was to make the chairman and chief engineer of the Canal Commission the president of the railroad company, and the members of the commission its directors. The stock of the company is held in the name of the Secretary of War, with the exception of a few shares held by the directors to entitle them to membership on the board. There are also a few directors chosen from other parts of the Government service, but their activities are purely perfunctory.