ing them over to the Seims-Carey-Keroaugh Corporation, as to their
Mr. Frost. Our producing logs?
Mr. Frear. Yes. I mean if you had been a subcontractor given a
subcontract the Seims-Carey-Kerbaugh Corporation were able to
make a cost-plus profit on this subcontract, were they not?
Frost. Oh, yes, I presume they were.
Mr. Frear. In this case that you undertook down there, this propo-
sition to log the Blodgett tract, jou gentlemen connected with the
loggers association agreed to log it without profit?
Mr. Frost. Yes.
Mr. Frear. And what period did you expect it would take to under-
take that work?
Mr. Frost. To undertake the work?
Mr. Frear. Yes, to conclude the work.
Mr. Frost. It would take a year perhaps, about a year.
Mr. Frear. Beginning at what time?
Mr. Frost. When our contract was entered into or agreed upon or
rather before it was signed up — it took quite a while to have the
contract drawn up — ^it was verbally agreed upon. We were supposed
to begin logging on the first of October, and that was with the under-
standmg that the railroad was to be completed — ^the main line rail-
road from Yaquina Bay to the Blodgett tract, up. It, however, vas
to be the first of October when the road was to be turned over to us
Mr. Frear. How long a road was that?
Mr. Frost. Between 24 and 25 miles.
Mr. Frear. Who had the construction of it?
Mr. Frost. The Warren Spruce Co.
Mr. Frear. What was the position of the loggers in relation to a
railway in reference to getting out logs? ^
Mr. Frost. You could not get any logs into the market or get them
into use without a railroad. That Blodgett tract is isolated.
Mr. Frear. When was that road completed, or has it been com-
Mr. Frost. It was not completed the last time I saw it, and that
was perhaps ten days or two weeks after the armistice had becfl
Mr. Frear. Was your company at that time undertaking to pro-
ceed on the losing business^ or to do it?
Mr. Frost. We were fallmg and bucking.
Mr. Frear. That is you were working in the woods at that time.
Mr. Frost. Yes.
Mr. Frear. What were you doing? Were you managing the
work, Mr. Frost?
Mr. Frost. Yes; I was president and manager of the Aircraft
Lumber Co. and I was actively supervising the work.
Mr. Frear. What company are you connected with at the present
Mr. Frost. I am manager of the Cedar Lake Logging Co.
Mr. Frear. That is a Washington corporation?
Mr. Frost. Yes.
Mr. Frear. And I believe you have stated you wanted to get
away from here because you nad some important matters to look
after in connection with some large corporation that is being organ-
Mr. Frobt. Yes.
Mr. Frear. Is there anything else that you think of that is ma-
terial to this investigation that occurs to you ?
Mr. Frost. Not that I know of. I have the maps of the Blodgett
holdings down there, if they are any use to you. I have the map
of Lincoln County in Oregon and I have a map of the cruise on the
Blodgett holdings with a contour map showing the cruise on that
ten acres, and also the map of lands that run from Toledo north.
Mr. Frear. Would you permit the committee to have the benefit
of those in our trip ?
Mr. Frost. You are perfectly welcome to them.
Mr. Frear. That would be very generous. We may find use for
them when we get down there. At this time in order to identify
one or two places I would like to introduce in the record what is
known as the Mclntyre letter to the Secretary of War, known as
set 8, connected with the Eay report which was turned over to the
(The paper above referred to was marked " Exhibit J " for identi-
fication, Aug. 21,1919).
I desire to read it into the record as I may have occasion to in-
quire on one or two points as to location.
Mr. Frear (reading) :
Office of the Chief of Staff,
Washington, March 5, 1919*
Memorandum for the Director of Air Service :
Subject: Report of Investigation Spruce Production Division, December, 1918,
and January, 1019.
By direction of the Chief of Staff the Inclosed papers with reference to an
investigation of the Spruce Production Division made by Maj. M. H. Ray,
I. G. D., are transmitted to you for your Information.
Major General, General Staff,
Executive Assistant to the Chief of Staff,
834 WAK EXPENDITURES.
Office of ths Chief of Staff,
Wa9hinffton, February — , J919.
Memorandum for the Chief of Staff :
Subject : Report of investigation of the Spruce Production Division, December.
1918, and January, 1919.
1. The attached papers relate to an investigation of the Spruce Prodaction
Division, made by MaJ. M. H. Ray, Inspector General's Department, in coil-
pUance with a memorandum from the Chief of Staff, dated November 30, 191S,
.transmitting a memorandum from the Secretary of War, dated November
2. This memorandum transmitted a copy of a telegram sent in code by th*
intelligence officer, Portland, Oreg., to the Director of Military IntelUePD«v.
Washington, D. C, dated November 23, 1918, in which were reported several
matters which had come to the attention of the military intelligence offi^vr
The inspector has divided this telegram into numbered allegations, each one of
which he considers in detail. He also Investigated other kindred charges whi'L
came to his notice while conducting this particular investigation.
3. In his memorandum to the Chief of Staff of November 27, 1918, the Secre-
tary of War states in part :
" I think this ought to be put in the hands of the Inspector General with
directions to send a very competent man to the Northwest to Investigate rb*^
things here referred to, and also to bring down his report on the whole situ^
tion to the present time."
The last phrase reading " and also to bring down his report on the
whole situation to the present time " is underscored on the typewriter.
The report goes on to say:
And again in a letter addressed to the honorable, the President of the Senate
dated December 10, 1918, In response to a resolution passed by the Senate ot
December 5, 1918, requesting, **What, if any, steps have been taken upon tr.*-
recommendation of Hon. Charles E. Hughes for an investigation of the s?»nhv
production section of the Aeroplane Division of the Signal Corps of the rnit**!
" I have the honor to inform you that by my direction, a comprehensive Inv**
tlgation of the spruce production situation was made, and a report peodnrv^i
during the month of July, by the Inspector General of the Army, coverlnc a
the features of the situation as it then existed. On November 30 the Insi"*^ t -r
General was further directed to send a very competent man to the Northwest
to further investigate this situation and complete his report on the whole sltna-
tion to the present time. In compliance with these instructions the Inspe*-*-*-
Greneral has detailed for this duty Maj. H. M. Ray, of the Inspector Geneni!>
Department, whom he considers specially fitted by education and special tn^ii
ing, and this officer is now engaged In this work. It is the Intention of 'h-
department that this investigation shall be as thorough and comprehen.<lve -.^
And again in a memorandum to the Inspector General, dated D«^iu!»t '
"The work of the Air Service brought to Washington and into the s«*r\i»v •'
the Government elsewhere, a large number of men of unblemished repuiar."'*
unquestioned integrity, and great talent as men of business and affairs. T *
task to which they came was novel, of great magnitude and difficulty, awi w • •
required to be performed with such speed as to make it impossible to tlt'\«- •
this now and great business slowly and conservatively. The inv«^tigniion v\ •»
by the Attorney General and Judge Hughes, and many investigations m»«J** - :
me or by my direction, have satisfied me that this work was perfonneil ^v'
singular efficiency, breadth of imagination and fidelity. Tliat there wis J- >-
and there, in minor and subordinate places, unfaithful servants, has be<»n «t -
covered and corrected; but the Government owes to these dlstinguislutl r-:
who have served it a debt of appreciation for which there is no payment r*"*
sible. The Government has also an obligation in the matter; it must \*r>\'*'
the reputations of these men against unwarranted assault and su<plci(m 1
therefore desire the investigation of the Spruce Production Division tc l*
thorongh, and such records made and kept as will always be available to pro-
tect the reputations of those who have participated in this great work, and also
to protect the War Department against the assaults growing out of misunder-
standings, business rivalries, personal jealousies, or any other unworthy causes.
Needless to say, I want no limitation put upon the investigation, but wish any
wrong-doing discovered called promptly to my attention with recommendations,
as to modes of redress."
Let me say parenthetically that this is the letter from the Secre-
tary of War, written to the Chief of the Intelligence Bureau prelimi-
narjr to the appointment in the matter of the Ray report. The report
4. The report of this investigation is quite comprehensive in nature, but
the inspector failed to grasp the apparent Intention of the Secretary of War
to " bring down his report of the whole situation to the present time," but con-
fined himself rather to the "Howes" telegram and other complaints. There
are several matters touched upon which should be cleared up in accordance
with the Instructions of the Secretary of War to have "such records made
and kept as will always be available to protect the reputations of those who
have participated in this great work, and also to protect the War Department."
From the evidence there Is no question here that several of the parties who
have alleged grievances Intend to make further trouble and possibly force a
congressional investigation. The War Department should therefore prepare
complete data and file it for future use..
The sentences beginning, " From the evidence' there is no question,"
etc., down through " complete data and file it for future use " has
pencil marks scratched through it. The report goes on:
5. One of the complaints which has been most dwelt upon is the question of the
location of a railroad to tap the virgin spruce In Clallam County, Washington.
The contention is that the Government was influenced by outside business in-
terests and laid out a route for this road which would tap no spruce until it
had covered some 30 miles. It appears that on May 18, 1918, a contract was
closed between the Spruce Production Division and the Slems-Carey-Ker-
bnugh Co., for the construction of a "standard-gauge railroad from a point on
the line of the Chicago, Milwaukee & St. Paul Railroad Co.'s railroad in the
State of Washington, to be determined by agreement between the parties, to
the contractor's mill site to be constructed at or near Lake Pleasant in said
State." The history of this case as shown by the records in the offlce of the
Chief of Staff and The Adjutant General Is as follows:
On March 5, 1918, Mr. Pliny Flsk, of Harvey Flsk & Sons, of New York
City, wrote a letter to the Director General of Railways urging the importance
€>f building a railroad Into Clallam County, Washington. This letter pointed
out two methods of entering this belt; one by the Port Angeles and Gray's
Harbor Railroad, which will be referred to hereafter as the Crescent Lake
Route and the otlier by a branch of the Chicago and Milwaukee Railroad, which
will be referred to as the Dei»p Creek Route. Mr. Flsk urged the building
of the ('rescent Lake Road, the promotors of which were evidently clients of
his firm. On March 13, 1918, the IMrector General of Railways wrote a letter
to the chairman of the Aircraft Production Board inclosing Mr. Flsk's letter
and stating that it was not the policy of the railway administration
to use money, materials and labor in the construction of new rail-
roads unless there was some urgent war need. On April 10, 1918, the .
Chief Signal Officer of the Army, who was then charged with aircraft matters,
wrote a letter to The Adjutant General of the Army in which he recommended
tlmt the Government advance the mcmey to cover the cost of building the Deep
Creek Railroad. To support this recommendation he inclosed copies of a letter
and a telegram from the commanding officer of the Spruce Production Division,
a c-opy of a resolution passed by the Pacific Coast Committee of the Aircraft
Board and another passed by the Aircraft Board in Washington. The com-
manding officer of the Spruce Production Division specifically recommended
against the Lake Crescent Route and in a letter of April 8, 1918, gives aa
reasons the following:
"It will be noted that the Milwakee extension (Deep Creek Route) will
iuimed lately tap large stands of spruce timber between Deep Creek and the
147155— 10— VOL 1 55
836 WAK EXPENDirURES.
Pysht River, whereas, the proposed Crescent Lake Railroad must be extendpti
its full length before any spruce will be available. Furthermore, it is regHiMed
by many excellent engineers as a very difficult problem to lay rail along eitbt-r
the north or south bank of Crescent Lake and those best equipped to disi us<
the problem state that the only practicable means of using tliis line would U- lo
ferry cars or product across Lake Crescent and connect with the Milwauktv
near Port Angeles."
And, again, in his telegram of March 20, 1918 :
"Distance necessary to open this line (Lake Orescent Route) to reach Urj.?
spruce tracts double that necessary via Milwaukee (Deep Creek Route) wi..
not give through railway facilities beyond Port Angeles. This line seems an un-
necessary expenditure and everybody interested in it wishes Govemnieut u*
bear portion of expense considerably greater than Crovemment would hare to
bear in extending Milwaukee. Milwaukee have been driving their road we?**
slowly to meet development of country and are now about thirty miles west wf
Port Angeles. Milwaukee being common carrier equipped to advance their own
line over their surveyed road unquestionably best means of entering CUHam
spruce. In this opinion I have support of most experienced operators in ihi*
That telegram, I take it, was from the Chief of the Spruce Division
at that time. It continues :
"Based on these recommendations the Secretary of War on April 24. 191*
approved the building of the Deep Creek Route and wrote a letter to the Direc-
tor General of Railways, stating in part :
"A virgin stand has been located in the northwestern part of the Stat^ of
Washington sufficient to meet the necessities of the next two or three yearv
The nearest railroad is the branch of the Chicago, Milwaukee and 8t. P:r.i .
running west from Port Angeles. This branch now terminates at Deep i>rtH
" The question of a railroad to reach this timber has been carefuUy coni«i«l**rv.i
and it is the unanimous opinion of the Pacific Coast Committee of the Ainrj::
Foard that the best solution of the question is the extension of the Chii-iij-.
Milwaukee and St. Paul Railway from Deep Creek to Forks."
You explained that Forks is around southwest of Lake Pleasant. I
believe. It continues :
" This extension Is included In the plans for the future development of tJ-
Milwaukee and the route has already been surveyed.
*' It is the opinion of the War Department that this railroad should be hn:*:
* * * ". The point in question is, What caused a reversal of the di?t-i*' -'
to build the Deep Creek Route and by whose authority was the action of :l-
Secretary of War of April 24, 1918, reversed? The only evidence on this su^.*" '
is that contained in the testimony of the commanding general of the Si»ri'>-
Production Division (Gen. Dlsque). He states:
" We had Mr. Roberts, of the Union Pacific, go over that ; Mr. Caliber, yf^-'
paid out the Canadian Pacific, go over it; Maj. Welch and I personally h^v*
gone over all the routes up there in Clallam County, and the Slen»4"ar>>
contract to build the railroad was closed in Washington, with the pro\-i< <*"
that the exact route would be determined by me before they l>egan operiti»rN
because in Washington, Mr. Byron, president of the Milwaukee, put a <1" "
in my mind as to the advisability of going ahead the way we had pbiiu.**:
before we went to Washington, so we left it open and came out here acain n^
went over the lines, and then had a meeting in Seattle, attendwl hy JJ*
Erling, of the Milwaukee, and his chief engineer; Mr. Roberts, chief enjn:-*T
of the Union Pacific; Mr. Caliber, who had logged the Canadian Paeim*: M:
, who had been a superintendent of the Milwaukee; Mr. Carey an<i n?-
self. We spent the evening listening to the different arguments and th«^ 1
decided to build it via Lake Pleasant (Crescent Lake route), and that de»i-««c
was concurred in by everyone present."
The inspector (Maj. Ray), who has been dl8charge<l, has inn»nm'»i •*•*
office (Col. Cocheu) that at the time of his investigation he had no kmiw;-:^
of the correspondence and action referred to above.
The railroad in question was built via Crescent Lake and the contni«t z^^
to the Siems-Carey-Kerbaugh Co. The road was intendeil to ship «>ut t •
product of the mill to be constructed at Pleasant Lake. The contraf't ft»r t:. *
logging was let to the same Siems-Carey-Kerbaugh Co.
That is a statement that appears in the Ray report. [Reading :]
Who first became IntercMSted In spruce production through the agency of Mr.
Pliny Flsk, as is shown by the statement that at about the same time that
Mr. Flsk wrote to the Director General of Railways urging the building of the
road in which he was interested (Crescent Lake route) he also suggested to
Mr. Kerbaugh that he form a company for supplying the Government with
spruce logged in Clallam and Jefferson Counties, Wash. In view of the
positive recommendati(ms of the Aircraft Board, the commanding officer of
the Spruce Production Division, and the chief signal officer that the Crescent
Lake route be not built, further detailed explanation should be made covering
the reason for the reversal of this opinion. It is not intended to cast any
reflection upon Gen. Disque and the other officers concerned, but "to protect
the reputations" of these men and "to protect the War Department." A
possible congressional investigation with reference to the location of this
railroad might prove embarrassing to the War Department, as the plain insin-
uation would be made that the decision was influenced by the large financial
interests concerned. The War Department should therefore gather together
all available data covering this question and file it for future use in case
snch an investigation is had." This last provision is struck out with pencil
from the words ** It is not intended " down to the words " investigation is had."
6. Most of the complaints made were instigated by four men, who claimed
to be the representatives of the Pacific Northwestern Logger's Bureau. These
men contended in the main that it was not necessary to bring in outside
agencies, such as tiie SiemsOarey-Kerfoaugb Co., but that there was available
sufficient eqoipmoit and men to produce enough spruce to meet the require-
ments of the United States and its allie& This contention seems to be borne
out in part by a letter from Gen. Disque to the "Loggers of Paget Sound,"
dated September 20, 1918, in which he states in part :
Quoting the letter of Disque:
'* I also think it is true that if this enterprise goes forward as now planned,
your district wiU be flooded with logging machinery at the close of the present
war. which will react on the value of your present equipment. It is my desire
in aU our Government operations to avoid disrupting the logging Industry
wherever this is possible; and I have, therefore, requested the Siems-Carey-
Kerbaugh Co. to first make an offer to the loggers of Paget Sound to contract
their logging operations rather than follow their present plans of purchasing
new equipment and create a new organization. They came to Portland at my
request and agreed heartily to adopt my suggestions; although they stated
that so far as they personally were concerned, they would much rather carry
out their present plans."
Continuing, Mclntyre says:
7. It is further alleged that the building of the mill at Port Angeles by the
Slenis-Carey-Kerbaugh Co. was unnecessary. In a letter to the Secretary of
War Mr. John D. Ryan states that:
"As to whether the mill built at Port Angeles, Wash., by Siems-Carey
Co.. under their contract with the Government was unnecessary and useless.
Competent persons should investigate and report. My opinion is that it was
absolutely necessary and had to be done if we were to get the spruce that would
have been required if the war had not ended as early as it did. One of the
largest sawmills in the work "
I suppose it should be " world." [Reading :]
" One of the largest sawmills in the world is located at Port Angeles, and
Siems-Carey Co. tried to buy it, but could not do so at a reasonable price."
Again Gen. Mclntyre continues:
In his testimony Gen. Disque states that when his attention was called to
it by the logging interests he realized that it would be unjust to them to increase
the mill capacity and he therefore entered into negotiations with the Siems-
Carey -Kerbaugh Co., with a view to having this corporation make subcontracts
with various people in this section of the country for the sawing of logs. This
would seem to Indicate that the Siems-Carey-Kerbaugh contract was entered
into without careful deliberation. There can be no question but that some of
838 WAB EXPBNDITUKES.
the logging interests in the Northwest deeply resented a "foreign" concern
coming into their territory with the largest contract that the Government had
let and then subletting part of the work to local operators. The Siems-Oarey-
Kerbaugh contract was a most profitable one for his corporation and guaranteed
a minimum profit of 7 per cent to the contractor on all expenditures, except the
overhead cost of the New York office. This clause is unusually liberal in as mucb
as the corporation was being financed by the Government and, had the contract
been carried to completion, it would have meant a profit of about $l,40U.uw
on a project which involved no financial risk on the part of the Slems-Carey-
Kerbaugh Co., and covered a period of 18 months.
There is nothing in these papers to show that any of tlie principal members
of this firm had previous experience in this line of work, but that contract wa»
negotiated and obtained through the efforts of Mr. Pliny Fisk, of Harvey Fi>k
I and Sons. The inspector concludes:
" However, the war situation at the time this contract was made was iliat
the quick and sure production of spruce was an absolute necessity, regardletikt of
cost, and the compensation was approved after careful consideration by Hi*
highest Government officials, who were in a position to know the urgenc}- ut
production and its value to the Government"
The Inspector General in the third indorsement, dated February 10, 1919. in-
vites special attention to these remarks. Due to the lack of cooperation by tiw
Puget Sound loggers and their evident desire to continue commercial logginirs
w^hich was nonessential to the winning of the war, it was apparently oecesAiry
for the War Department to seek the help of the outside operators who vfonA
undertake the work of producing spruce for our military needs, and those onlj.
While this idea may be gleaned from the mass of evidence submitted, there i«
nowhere a definite, concise statement covering this phase of the situation. Su<-li
statement should be prepared for the files of the War Department
8. To add to the dissatisfaction and gossip, Col. Hitchcock, at a confenHi*^
with the representatives of certain logging interests, gave the Impresslan \h:\\
this contract was negotiated In W^ashington and was contrary' to the wishes ai.l
views of Gen. Disque, whereas in reality Gen. Diaque had, in a conversati.*
with Col. Hitchcock, remarked that the cancellation clause did not conftMin en-
tirely with his view. This loose talk on the part of Col. Hitchcock was nj"<