The lottery is conducted by the Government—the monthly drawings taking place in the Treasury (Hacienda) Department. The sale of tickets yielded $1,000,000 over and above prizes in 1897.

In a report to General Merritt, on August 29th, I recommended that the opium contract be cancelled and the lottery abandoned during our occupation of Manila; and as the poll tax and the tax on industry and commerce had been paid for the most part in the early part of the year, our chief sources of revenue were from the custom house, the sale of stamps and stamped paper, and the sale of such licenses as the law allowed (amusements, liquor saloons, etc.), for the benefit of the city of Manila as distinguished from the general revenue. I estimated the total at about $500,000 per month.

The expenses of administering the military government of occupation (apart from the expenses of the army) will consist of the current expenses of the office at the Provost Marshal General's office and its various bureaus—at the custom house, internal revenue office, and other offices—and the salaries of interpreters and minor employes who are anxious to resume work as soon as they dare do so. An estimate of these expenses was being prepared at the time I left, but was not completed. It can hardly exceed $200,000 per month and may be much less. This should leave $300,000 (silver) excess of income per month, to go towards the military expenses of occupation.

As soon as it is decided that we are to retain the islands it will be necessary to make a careful study of the sources of revenue and items of expenses for all the islands, with a view to thoroughly understanding the subject, before introducing the extensive changes which will be necessary.

Currency.

The standard of value has always, until within a few years, been the Mexican milled dollar. The Spanish dollar contains a little less silver and, in order to introduce it and profit by the coinage, the Spaniards prohibited the importation of Mexican dollars a few years since. Large numbers of Mexican dollars remained in that country, however, and others were smuggled in. The two dollars circulate at equal value.

All valuations of goods and labor are based on the silver dollar, and a change to the gold standard would result in great financial distress and many failures among the banks and mercantile houses in Manila. Their argument is that while an American ten-dollar gold piece will bring twenty-one silver dollars at any bank or house having foreign connections, yet it will not buy any more labor or any more hemp and sugar from the original producer than ten silver dollars. The products of the country are almost entirely agricultural, and the agricultural class, whether it sells its labor or its products, would refuse to accept any less than the accustomed wages or prices, on account of being paid in the more valuable coin. The result of the change would be that the merchant or employe would have to pay double for what he buys, and would receive no increase for what he sells. While trade would eventually adjust itself to the change, yet many merchants would be ruined in the process and would drag some banks down with them.

The Mexican dollar is the standard also in Hongkong and China, and the whole trade of the Far East has, for generations, been conducted on a silver basis. Japan has, within the last year, broken away from this and established the gold standard, but in doing so the relative value of silver and gold was fixed at 32 1/2 to 1, or about the market rate.

Public Debt.

I was unable to obtain any precise information in regard to the colonial debt. The last book on statistics of imports and exports was for the fiscal year 1894, and the last printed budget was for 1896-7, which was approved by the Queen Regent in August, 1896. Subsequent to this date, according to the statements made to me by foreign bankers, the Cortes authorized two colonial loans of $14,000,000 (silver) each, known as Series A and Series B. The proceeds were to be used in suppressing the insurrection. Both were to be secured by a first lien on the receipts of the Manila custom house.