When the United States acquired the properties of the new French Canal Company it found itself in the possession of a railroad for which it had allowed the canal company $7,000,000. This road, in the high tide of its history, had proved a bonanza for its stockholders, and during the 43 years between 1855 and 1898 it showed net profits five times as great as the original cost of its construction.

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.

In addition to the railroad, the Panama Railroad Company also operates a steamship line between New York and Colon. This line was acquired with other properties of the new French Canal Company as a part of the Panama Railroad's holdings. There were only a few years during the construction period when this steamship line did not show a loss. But the advantages of having a steamship line for carrying the supplies of the canal were so great, because of the special facilities that could be provided, that the loss was more than compensated by them. During the year 1912 the cost of operating this steamship line was $305,000 greater than the revenues derived from its operation. But, at the same time there was a return of net earnings by the Panama Railroad of over $2,000,000, at least a part of which was made possible by the operation of the steamship line. Even after deducting the losses sustained in the operation of the steamship company there was a net profit of more than $1,700,000, which for a railroad of less than 50 miles in length is no small item.

As a matter of fact, Government ownership of railways as applied at Panama is remarkably successful from the standpoint of the Government, and partially so to the patrons of the railroad. Probably no railroad in the United States could show net earnings per mile of line anywhere comparable with those of the Panama Railroad.

The rates for passengers and baggage across the Isthmus were rather high for first-class passengers, the fare for the 48-mile trip being $2.40, or 5 cents a mile. The second-class rate was only half as much. On the handling of freight the railroad had to divide the through rate with the steamship companies of the Atlantic and the Pacific, but, while the rates were high, judged by American standards, and the percentages of profits very large, the service maintained was so superior to that encountered on the privately owned railroads of the Tropics that no one ever seriously complained of the charges.

One of the most important services rendered by the Panama Railroad Company in the construction of the canal was in connection with the commissary. It had more to do with the maintenance of a reasonable standard of living cost on the Isthmus than anything else.

When the canal was nearing completion it became advisable to determine what rÔle the Panama Railroad should play after the permanent organization went into effect. Should it be continued as a separate entity distinct from the canal but controlled by the canal authorities? Or should it be merged into the Canal Government and operated purely as an auxiliary of the canal with no separate existence? This matter was carefully weighed by the canal authorities and the Government at Washington, and it was finally decided that the best plan would be to operate them as separate entities, but to have all the work done by single organization. Another question that arose was whether the Panama Railroad Steamship Line should be operated as a Government line after the completion of the canal. Recalling the fact that the line never had been a profitable one, and that there was no further reason why it should be continued in operation with an annual deficit, the recommendation was made by the chairman and the chief engineer that the ships should be disposed of and the line discontinued.

As the tide of tourist travel set toward Panama, the serious problem of taking care of thousands of visitors confronted the canal authorities. There were times when every available facility for taking care of lodgers was called into requisition, and still hundreds of American tourists had to find quarters in cheap, vermin-infested native hotels at Colon. Believing that the situation demanded a modern hotel at the Atlantic side of the Isthmus, and having in mind the success of the Government in the construction and maintenance of the Tivoli Hotel at the Pacific side, it was decided by the Secretary of War that the Panama Railroad Company should build a new hotel at Colon, to be operated by that company for the Government. The result was the beautiful Washington Hotel, in whose architecture one finds the world's best example of northern standards of hotel construction adapted to tropical needs.

Built of concrete and cement block, it is constructed in a modified Spanish Mission style that makes it cool and comfortable at all times. Its public rooms, from the main lobby to the dining-rooms, from the ladies' parlor to the telephone and cable rooms, from the barber shop to the billiard room, are large, airy, and most attractively furnished. Its ball room, opening on three sides to the breezes borne in from the Caribbean is a delight to the disciples of Terpsichore, while its open-air swimming pool, said to be the largest hotel swimming pool in the world, affords ideal facilities for those who otherwise would sigh for the surf. Persons who have visited every leading hotel in the New World, from the Rio Grande southward to the Strait of Magellan, say that it is without a superior in all that region and, perhaps, without an equal except for one in Buenos Aires.

Here one may find accommodations to suit his taste and largely to meet the necessities of his pocketbook. The best rooms with bath cost $5 a day for one, or $6 for two. Table d'hote meals are served at $1 each, while those who prefer it may secure club breakfasts and a la carte service. Anyone who has visited the Hotel Washington, situated as it is on Colon Beach, where the breakers sweep in from the Caribbean Sea, feels that Uncle Sam is no less successful as a hotel keeper than as a builder of canals.

The Panama Railroad, under the American rÉgime, has always looked well after the comfort of its patrons. The coaches are of the standard American type, and enough of them are run on every train to make it certain that no patron need stand for lack of a seat. The most popular trains carry from 8 to 12 cars. These trains are run on convenient schedules, permitting a person to go and come from any point on the road in any forenoon or afternoon. All coaches are supplied with hygienic drinking cups, and in every way the Panama Railroad shows that Uncle Sam is solicitous for the welfare of his patrons.

All the rolling stock on the Isthmus is built on a 5-foot gauge, this having been the gauge of the original Panama Railroad. As the rolling stock of the Canal Commission had to run over the lines of the Panama Railroad, it also was built on the gauge. When this rolling stock is disposed of it will be necessary to readjust the gauge to meet the ordinary American standard which is 2¹/₂ inches narrower. It has been estimated that the engine axles can be shortened for $750 per locomotive and those of cars at prices ranging from $27 to $31 per car.

The first attempt to build the Panama Railroad was made in 1847, when a French company secured a charter from the Government of Colombia for a building of a road across the Isthmus. This company was unable to finance the project and the concession lapsed.

In 1849 William H. Aspinwall, John L. Stevens, and Henry Chauncey, New York capitalists, undertook the construction of the road. The terms of the concession provided that the road would be purchased by the Government at the expiration of 20 years after its completion for $5,000,000. The loss of life in the construction of this road, serious as it was, has been monumentally exaggerated. It is an oft-repeated statement that a man died for every tie laid on the road. This would mean that there were 150,000 deaths in its construction. As a matter of fact, the total number of persons employed during the six years the line was being built did not exceed 6,000. But among these the death rate was very high. Several thousand Chinese were brought over and they died almost like flies. Malaria and yellow fever were the great scourges they had to encounter, although smallpox and other diseases carried away hundreds.

The road was completed in January, 1855. Before the last rail was laid more than $2,000,000 had been taken in for hauling passengers as far as the road extended. The way in which the original 50-cent per mile rate across the Isthmus was established is interesting. The chief engineer encountered much trouble from people who wanted to use the road as far inland as it went from Colon, so he suggested that a 50-cent rate be established, thinking to make it prohibitory. But the people who wanted to cross the Isthmus were willing to pay even 50 cents a mile. Hence for years after the completion of the road the passenger rate continued at $25 for the one-way trip across the Isthmus.The railroad proved to be such an unexpectedly good investment that the Republic of Colombia began to establish its claim to acquire ownership of the road at the expiration of the 2-year term, which would take place in 1875. It was necessary therefore, that the railroad company should take steps to save the railroad from a forced sale with $5,000,000 as the consideration. Representatives were dispatched to Bogota with instructions to get an extension of the concession under the most favorable terms possible. As it was realized that the Republic of Colombia held the whip hand in the negotiations, the railroad company understood that if it wished to escape selling its great revenue producing road for $5,000,000 it would have to meet any terms Colombia might dictate. The result of this mission was an agreement by the railroad that in consideration of an extension of the concession for a term of 99 years it would pay to the Colombian Government $1,000,000 spot cash and $250,000 a year during the life of the concession. That annual payment was continued as long as the Isthmus remained a part of the Republic of Colombia. Under the terms of the treaty between the United States and the Republic of Panama it was resumed again in 1913, to be paid by the United States to the Republic of Panama throughout all the years that the United States maintains and operates the Panama Canal.