The building of railroads, and the access thereby given to all the agricultural and mineral regions of the country, is rapidly bringing civilized settlements into contact with all the tribes of Indians. No matter what ought to be the relations between such settlements and the aborigines, the fact is they do not harmonize well, and one or the other has to give way in the end. A system which looks to the extinction of a race is too horrible for a nation to adopt without entailing upon itself the wrath of all Christendom and engendering in the citizen a disregard for human life and the rights of others, dangerous to society. I see no substitute for such a system, except in placing all the Indians on large reservations, as rapidly as it can be done, and giving them absolute protection there. As soon as they are fitted for it they should be induced to take their lands in severalty and to set up Territorial governments for their own protection. For full details on this subject I call your special attention to the reports of the Secretary of the Interior and the Commissioner of Indian Affairs.

The report of the Secretary of War shows the expenditures of the War Department for the year ending June 30, 1869, to be $80,644,042, of which $23,882,310 was disbursed in the payment of debts contracted during the war, and is not chargeable to current army expenses. His estimate of $34,531,031 for the expenses of the Army for the next fiscal year is as low as it is believed can be relied on. The estimates of bureau officers have been carefully scrutinized, and reduced wherever it has been deemed practicable. If, however, the condition of the country should be such by the beginning of the next fiscal year as to admit of a greater concentration of troops, the appropriation asked for will not be expended.

The appropriations estimated for river and harbor improvements and for fortifications are submitted separately. Whatever amount Congress may deem proper to appropriate for these purposes will be expended.

The recommendation of the General of the Army that appropriations be made for the forts at Boston, Portland, New York, Philadelphia, New Orleans, and San Francisco, if for no other, is concurred in. I also ask your special attention to the recommendation of the general commanding the Military Division of the Pacific for the sale of the seal islands of St. Paul and St. George, Alaska Territory, and suggest that it either be complied with or that legislation be had for the protection of the seal fisheries from which a revenue should be derived.

The report of the Secretary of War contains a synopsis of the reports of the heads of bureaus, of the commanders of military divisions, and of the districts of Virginia, Mississippi, and Texas, and the report of the General of the Army in full. The recommendations therein contained have been well considered, and are submitted for your action. I, however, call special attention to the recommendation of the Chief of Ordnance for the sale of arsenals and lands no longer of use to the Government; also, to the recommendation of the Secretary of War that the act of 3d March, 1869, prohibiting promotions and appointments in the staff corps of the Army, be repealed. The extent of country to be garrisoned and the number of military posts to be occupied is the same with a reduced Army as with a large one. The number of staff officers required is more dependent upon the latter than the former condition.

The report of the Secretary of the Navy accompanying this shows the condition of the Navy when this Administration came into office and the changes made since. Strenuous efforts have been made to place as many vessels "in commission," or render them fit for service if required, as possible, and to substitute the sail for steam while cruising, thus materially reducing the expenses of the Navy and adding greatly to its efficiency. Looking to our future, I recommend a liberal, though not extravagant, policy toward this branch of the public service.

The report of the Postmaster-General furnishes a clear and comprehensive exhibit of the operations of the postal service and of the financial condition of the Post Office Department. The ordinary postal revenues for the year ending the 30th of June, 1869, amounted to $18,344,510, and the expenditures to $23,698,131, showing an excess of expenditures over receipts of $5,353,620. The excess of expenditures over receipts for the previous year amounted to $6,437,992. The increase of revenues for 1869 over those of 1868 was $2,051,909, and the increase of expenditures was $967,538. The increased revenue in 1869 exceeded the increased revenue in 1868 by $996,336, and the increased expenditure in 1869 was $2,527,570 less than the increased expenditure in 1868, showing by comparison this gratifying feature of improvement, that while the increase of expenditures over the increase of receipts in 1868 was $2,439,535, the increase of receipts over the increase of expenditures in 1869 was $1,084,371.

Your attention is respectfully called to the recommendations made by the Postmaster-General for authority to change the rate of compensation to the main trunk railroad lines for their services in carrying the mails; for having post-route maps executed; for reorganizing and increasing the efficiency of the special-agency service; for increase of the mail service on the Pacific, and for establishing mail service, under the flag of the Union, on the Atlantic; and most especially do I call your attention to his recommendation for the total abolition of the franking privilege. This is an abuse from which no one receives a commensurate advantage; it reduces the receipts for postal service from 25 to 30 per cent and largely increases the service to be performed. The method by which postage should be paid upon public matter is set forth fully in the report of the Postmaster-General.

The report of the Secretary of the Interior shows that the quantity of public lands disposed of during the year ending the 30th of June, 1869, was 7,666,152 acres, exceeding that of the preceding year by 1,010,409 acres. Of this amount 2,899,544 acres were sold for cash and 2,737,365 acres entered under the homestead laws. The remainder was granted to aid in the construction of works of internal improvement, approved to the States as swamp land, and located with warrants and scrip. The cash receipts from all sources were $4,472,886, exceeding those of the preceding year $2,840,140.

During the last fiscal year 23,196 names were added to the pension rolls and 4,876 dropped therefrom, leaving at its close 187,963. The amount paid to pensioners, including the compensation of disbursing agents, was $28,422,884, an increase of $4,411,902 on that of the previous year. The munificence of Congress has been conspicuously manifested in its legislation for the soldiers and sailors who suffered in the recent struggle to maintain "that unity of government which makes us one people." The additions to the pension rolls of each successive year since the conclusion of hostilities result in a great degree from the repeated amendments of the act of the 14th of July, 1862, which extended its provisions to cases not falling within its original scope. The large outlay which is thus occasioned is further increased by the more liberal allowance bestowed since that date upon those who in the line of duty were wholly or permanently disabled. Public opinion has given an emphatic sanction to these measures of Congress, and it will be conceded that no part of our public burden is more cheerfully borne than that which is imposed by this branch of the service. It necessitates for the next fiscal year, in addition to the amount justly chargeable to the naval pension fund, an appropriation of $30,000,000.