You are permitted, in conducting the exchange, to waive for the present the consideration of the questions of parole and excess now pending between the Confederate belingerent authorities and this Government, leaving them untoched as they stand until further interchange of views between those authorities and yourself.

The above instructions to General Butler will show precisely the animus of the Secretary of War on the subject of exchanges. He was perfectly willing and anxious to make exchanges, man for man, officer for officer, and gave, as must be seen, the fullest power to General Butler to effect those exchanges. General Butler in his conversation with me expressed no desire to have any other instructions or powers committed to him, and appeared to be very confident of his ability to accomplish the desired result, giving me in detail many reasons for that confidence. I returned to the city of Washington, and within a few days the public prints announced General Butler's first attempt to make exchanges and the result. General Butler sent a boat load of prisoners under a flag of truce to City Point, where they were offered for a like number of Federal troops. It appears that when this was reported to the rebel Government violent indignation was expressed by the rebel authorities, on the alleged ground that General Butler was an outlaw by the proclamation of Mr. Davis, and that it was an insult to employ him to accomplish any result requiring any sort of intercourse between him and the rebel authorities; but it was concluded that, inasmuch as a certain number of their troops were actually within their lines as returned prisoners of war, they should be received, and a like number of Federal prisoners should be exchanged for them; but notice was given to our agent that no more prisoners would be received in that manner, and it was reported at the time that General Butler was informed that a flag of truce even should not protect him within the rebel lines.

When this was reported in Washington the President himself, in the presence of the Secretary of War, declined to give any order on the subject, unwilling to concede to the rebels the right to dictate what agents this Government should employ in its public business; but it was plain to be seen that the real object of the rebel authorities was to avoid making equal exchanges of man for man and officer for officer, their purpose being to deliver to us, as before stated, only a proportionate of prisoners held by them as against those held by us; and because General Butler's instructions required the exchange of man for man, made the employment of General Butler in the business of exchange a pretext for refusing those equal exchanges. This was evident, because, in point of fact, General Butler did not personally appear in the business--that is, he did not accompany the flag of truce--and if there had been any disposition on the part of the rebels to make equal exchanges they knew those exchanges would be made through the agency of another officer and not personally by General Butler; and thus the real purpose of the rebels becomes manifest, their object being to draw from us all of their own troops in our hands, giving us in exhange only such white troops of the Federal forces as they might hold.

After this experiment by General Butler matters remained in suspense for some time, no exchanges being made.

At length two Federal officers who had escaped from rebel prisons gave me their opinion, in this city, that it we would send to City Point for exchange a body of 300, 400, or 500 rebel officers, demanding a like number in return, the feeling in the South, they believed, would be such that the rebel authorities would not dare to refuse the exchange;