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 ; 1, Reprihted for priyaie circulation from . 
 
 The Jotjknal ov Political iEcpNOJiYj Vol. XJflll, Nos. 3, 4, s 
 -March, 'April/May 191 S 
 
Cornell University 
 Library 
 
 The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924032433090 
 
A\4 
 
 THE JOURNAL 
 
 OF 
 
 POLITICAL ECONOMY 
 
 Volume 23 MuVCh IQI^ Number 3 
 
 THE SHERMAN ACT AND THE NEW ANTI-TRUST 
 LEGISLATION. I 
 
 The recent additions to the federal legislation having to do 
 with monopolies and trusts have followed upon three years of con- 
 tinued and vigorous discussion. In part, very likely, this general 
 revival of interest in the control of the trusts was bound up with 
 the growth of a general radical movement in politics, and more 
 especially with the demand for a generally increased measure of 
 government control of industry. But there is more than mere coinci- 
 dence in the fact that this period of active public discussion followed 
 immediately upon the decisions of the Supreme Court in the 
 Standard Oil and American Tobacco cases. Before these decisions 
 the Sherman act was a weapon which had never been fairly tested 
 with respect to its efl&cacy for the purpose for which it was forged. 
 But with its strength and its limitations at least partly uncovered, 
 it became a fair target for criticism. 
 
 Not only were the undertakings directly affected by these 
 decisions of great magnitude and with far-reaching affiliations, 
 but, what is more important, each was precisely the sort of under- 
 taking against which the statute was primarily directed. Whether 
 or not labor organizations, railroad combinations, and price agree- 
 ments affecting a limited area were intended to be covered by the 
 condemnation of the law might afford some ground for debate. 
 
202 JOURNAL OF POLITICAL ECONOMY 
 
 but both the phraseology of the statute and the circumstances 
 attending its enactment place its intent in regard to great industrial 
 combinations beyond the possibility of a doubt. But not until the 
 law had been on the statute books for over twenty years was 
 its efficacy as a weapon against unified industrial consolidations — 
 "trusts" of the modern sort — thoroughly tested in the Supreme 
 Court.' 
 
 Furthermore, the findings of the court were in themselves such 
 as to renew interest in the statute and stimulate discussion. Espe- 
 cially is this true, of course, of the court's intimation that not all 
 agreements in restraint of trade were prohibited by the statute. 
 Extreme radicals found this state of affairs in itself unsatisfactory. 
 Many others, whether radically minded or not, were disquieted 
 by the opportunity for judicial legislation afforded by the necessity 
 of drawing a line beween legal and illegal combinations. There 
 was also an excusable curiosity on the part of business men as to 
 the legal status of existing business arrangements, including not 
 only overt combinations but also a mass of secret trade agree- 
 ments which would, in part at least, be brought to light if their 
 legality were assured. And a similar interest attached to the 
 possibility of introducing trade agreements into new and supposedly 
 forbidden fields. 
 
 Along with this curiosity as to the exact extent of the field for 
 business combination left unguarded by the apparently shrinking 
 statutory barriers, there was an increased amount of apprehension 
 and disquietude, especially on the part of the larger business com- 
 binations. For even if the law itself had been somewhat softened, 
 its administration had been unprecedently vigorous. There have 
 been not a few attempts to show that the vigor and pertinacity 
 with which the law has been enforced have varied with the policies 
 of different presidential administrations. Since the enactment 
 of the law there has been a rapid but fairly steady increase in the 
 
 ' The E. C. Knight Co. (Sugar Trust) case does not constitute a real exception 
 to this statement, because of the narrow issue on which the decision of that case 
 turned. None of the other so-called "trusts" involved in cases which reached the 
 Supreme Court were more than combinations of independent undertakings held 
 together by price agreements, pooling arrangements, or the employment of a common 
 sales agent. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 203 
 
 number "of prosecutions and a yet more notable increase in the 
 number of successful prosecutions. Nevertheless it would be 
 going too far to attribute all of the difference to the relative apathy 
 of the earlier administrations. The earher decisions, especially 
 in the cases of In re Greene" and United States v. E. C. Knight Co.,' 
 were discouraging, and the development of adequate adminis- 
 trative machinery has been of necessity a slow process. At any 
 rate, it is evident that the work of the public prosecutor in recent 
 years has been carried on under more advantageous circumstances 
 than it was twenty or ten years earlier. The successive decisions 
 under the statute have indicated what are likely to be the more 
 vulnerable aspects of the combinations attacked; mistakes and 
 deficiencies in the preparation of some of the earlier cases have 
 naturally been guarded against in the later. Moreover, whether 
 or not a given combination falls under the condemnation of the 
 statute is a matter of fact as well as of law, and the Department 
 of Justice is much better equipped than formerly for uncovering the 
 complex and frequently hidden facts in the case. Not until 1903' 
 was the immunity of witnesses from prosecution on account of 
 matters testified to, which had been granted in 1893 so far as pro- 
 ceedings under the Interstate Commerce act were concerned, 
 extended to witnesses in proceedings under the Anti-trust act. 
 The establishment of the Bureau of Corporations in 1903 and the 
 organization of the Bureau of Investigation in the Department of 
 Justice in 1908'' made available a permanent staff of expert investi- 
 gators. Not only have these bureaus been signally useful in the 
 collection of evidence for the prosecution, but, what is quite as 
 important, their investigations have indicated in advance whether 
 a proposed prosecution under the statute might be undertaken 
 with any hope of success. ^ The government has been better 
 equipped in recent years for the efficient enforcement of the Sherman 
 law than ever before. 
 
 ' 52 Fed. 104. ' 156 U.S. I. 
 
 3 32 U.S. Stat. 854. Mention should also be made of the acts of 1903 and igio 
 to expedite hearings under the Sherman law (32 U.S. Stat. 823; 36 U.S. Stat. 854). 
 
 ^ Report of the Attorney-General, 1909, p. 8. 
 
 5 Hid., 1910, pp. 2, 3, 26. 
 
204 JOURNAL OF POLITICAL ECONOMY 
 
 But it would not be fair to attribute all or even a major part of 
 the recent interest in the amendment of the Sherman act to what- 
 ever dissatisfaction, uncertainty, and unrest were created by the 
 interpretation and administration of the statute. There were indi- 
 cations that legislators and publicists had a more adequate appre- 
 ciation of the real nature of the problems involved in the growth 
 of industrial combinations than was the case twenty years before. 
 That the Sherman law had apparently had but little effect in 
 checking the movement toward industrial combination was in 
 itself a fact demanding explanation and compelling, in a manner, 
 a recognition of the complexity of the problem and the possibiKty 
 of other ways of dealing with it. 
 
 Furthermore, it is significant that in much of the more serious 
 discussion, both the analysis of the problem and the proposals of 
 specific remedies involved the recognition of certain principles that 
 for some years had been very generally accepted among economists. 
 Specific instances of the direct influence of economic writing and 
 teaching have not been lacking,' and it is fair to infer that through 
 a process of gradual diffusion the indirect influence has been 
 considerable. 
 
 There seems to have been a very general impression that the 
 decisions in the Oil and Tobacco cases declared a new judicial 
 policy in the application of the An ti- trust act; that "good trusts" 
 were to be distinguished from "bad trusts"; that combinations 
 might restrain trade providing they did not "unduly" restrain it; 
 that possibly even price agreements were permissible, if the prices 
 agreed upon were "reasonable." Much has been written upon 
 these points, but because the significance of the recent supple- 
 mentary legislation hinges in part upon the real bearing of these 
 decisions, I think it worth while to review the matter again. 
 
 If the decisions in question are to be taken at their face value, 
 the general impression that they opened the way for "reasonable" 
 
 ' Although there are many who might be mentioned, special reference should be 
 made to the mfluence of (i) Professor R. T. Ely's early and continued insistence upon 
 the fact that mere size does not give sufficient advantage to be the basis of a lasting 
 monopoly, and that where there is such monopoly there must be some definite source 
 of monopoly power, and (2) Professor J. B. Clark's thesis that the only power for evil 
 possessed by most of the trusts was the power of predatory competition. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 205 
 
 price agreements and mildly repressive contracts and combinations 
 in restraint of trade does not seem to have been well founded. 
 The precedents from which in particular the new holdings were 
 supposed to mark a departure are the decisions in the Trans- 
 Missouri Freight Association and Joint Traffic Association cases. 
 In these cases it was held in general terms that the Sherman law, 
 referring as it does to "every" contract, etc., in restraint of trade, 
 prohibits contracts and combinations in restraint of trade whether 
 reasonable or not. The minority opinion in the Trans-Missouri 
 case, written by the present Chief Justice and concurred in by 
 three other justices, held that the phrase "restraint of trade" 
 should be given its common-law meaning, under which not all con- 
 tracts limiting the freedom of trade are deemed invalid as involving 
 "restraint of trade." 
 
 But the issue as between the majority and minority opinions 
 does not seem to have been squarely joined. It has been very 
 generally overlooked that it was intimated in the majority holding 
 in the Trans-Missouri case and plainly stated in the Joint Traffic 
 case that certain kinds of contracts which involve in fact some 
 restraint of trade but are not invahd under common law would not 
 he held illegal under the statute.^ From this it would appear that 
 so far as the general statement of the principles of the law is con- 
 cerned the division of the court was more apparent than real. But 
 there was, however, some fundamental ground of disagreement, 
 even if not clearly expressed, for these supposedly conflicting inter- 
 pretations of the law were not offered as mere dicta, but in support 
 of opposing opinions as to the legality of the particular combinations 
 under consideration. 
 
 The specific question involved was whether a combination of 
 railroads for the purpose of fixing and maintaining rates fell under 
 the condemnation of the statute, if the rates fixed by the agree- 
 ment were not shown to be in themselves unreasonable. In the 
 dissenting opinion it was claimed, first, that such agreements 
 among railroads were necessary and even desirable, hence not 
 unreasonable and consequently not illegal, and, second, that the 
 Sherman act was not intended to apply to railroads. The majority 
 
 ' 166 U.S. 329; 171 U.S. s67- 
 
2o6 JOURNAL OF POLITICAL ECONOMY 
 
 of the court held, however, that neither of these contentions 
 could be sustained in the face of the fact that the Sherman act 
 condemns every combination in restraint of trade. The real ground 
 of difference, I think, is to be found in the fact that, although 
 both the majority and the minority of the court were agreed that 
 some agreements which restrain trade are not condemned by the 
 statute, they did not agree as to the general logical basis of such 
 exceptions. The dissenting opinion held that "reasonableness" 
 in the sense, apparently, of an absence of harmful economic or 
 social effects is the ground on which exceptions should be made, 
 while the majority of the court held (more clearly in the Joint 
 Traffic case) that every agreement is illegal if its direct purpose is 
 restraint of trade, while it may be legal if the restraint of trade is 
 merely incidental to a contract made primarily for another and 
 legitimate purpose, providing that the restraint of trade is no 
 greater than is necessary to the protection of the legitimate purpose 
 of the contract.' Both the majority and minority opinions claimed 
 to be in harmony with common-law precedents. But this last is 
 a matter too large for present discussion, and does Hot fall within 
 the competence of the present writer.^ 
 
 What the Trans-Missouri and Joint Traffic decisions virtually 
 resolve themselves into is this: Certain classes, forms, or kinds of 
 agreements, such as a partnership or an ordinary corporation 
 formed by the union of former competitors, or the sale of the good- 
 will of a business on terms by which the seller agrees not to compete 
 with the buyer, may "restrain trade," but because the main 
 purpose of such combinations or contracts is legitimate, and the 
 restraint of trade is only incidental, they will not be considered as 
 restraints of trade under the statute. But where the direct pur- 
 pose of a combination or contract is restraint of trade it will be 
 deemed illegal even if the restraint is reasonable in the sense that 
 
 ' 171 U.S. 567, 568. Cf. Hopkins v. United States, 171 U.S. 592-94. 
 
 = The majority opinion seems to be in harmony with the frequently cited summary 
 of common-law precedents by Judge Taf t in United States v. Addyston Pipe &• Steel Co. 
 85 Fed. 281, 282. In general harmony with the dissenting opinion is Mr. Bruce 
 Wyman's thesis that the pubHc interest rather than the hard-and-fast rule of the 
 maintenance of competition is the ultimate criterion by which the common law tests 
 the validity of contracts in restraint of trade. Cf . his Control of the Market, especially 
 chap. vi. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 207 
 
 it is not prejudicial to the public interest. The things thus dis- 
 tinguished have come to be known as "direct restraint" and 
 "indirect restraint." 
 
 The court did not differentiate the meaning of "restraint of 
 trade" in the statute from its common-law meaning by bringing 
 under the inhibition of the statute any of the general classes or 
 kinds of contracts or combinations which were valid under common 
 law. But it did refuse to give to the statute the elasticity which 
 the dissenting opinion held was to be found in the common law. 
 By the statute Congress had, in the view of the court, estabHshed 
 unrestricted competition as the declared pubKc policy in such 
 matters, and it was for Congress, not the court, to relax the rule 
 if its rigid application were found to be undesirable. In short, 
 all combinations and contracts entered into with the direct pur- 
 pose of restricting competition in interstate commerce were held 
 to be illegal, although it was still held, as in earlier cases, that agree- 
 ments which "indirectly and remotely" affect interstate commerce 
 were not covered by the act. 
 
 The doctrine thus established was followed in the Northern 
 Securities case' and in a number of cases decided in the inferior 
 courts.^ In none of these subsequent cases, however, with the 
 possible exception of the Northern Securities case, is there any clear 
 indication in the decisions that the findings would have been for the 
 defendants had it not been for the Trans-Missouri precedent. The 
 rule estabhshed in that case may have simply afforded the courts 
 a convenient means of narrowing the issues in subsequent cases, 
 by ruling out at once the defense of reasonableness. 
 
 On the other hand, however, before the Trans-Missouri decision 
 the lower courts had refused to apply the Sherman act to a number 
 of combinations which clearly restrained trade in ways more direct 
 than were indicated as permissible in the Trans-Missouri case. 
 Certain price agreements, for example, were declared legal.^ After 
 
 ' 193 U.S. 331. 
 
 'Representative cases are: United States v. Coal Dealers' Association, 85 Fed. 
 252; United States v. Swift &" Co., 122 Fed. 529; Whitwell v. Continental Tobacco Co., 
 I2S Fed. 4S4; Phillips v. lola Portland Cement Co., 125 Fed. S93- 
 
 > United States v. Nelson, 52 Fed. 646; Dueher Watch-Case Manufacturing Co. 
 V. E. Howard Watch 6" Clock Co., 66 Fed. 637. 
 
2o8 JOURNAL OF POLITICAL ECONOMY 
 
 the Trans-Missouri decision, agreements somewhat similar to 
 these were declared unlawful.' It is fair to infer that the Trans- 
 Missouri decision distinctly widened the actual field of application 
 of the statute so as to include, moreover, cases involving particular 
 issues quite distinct from those of the leading case. 
 X Turning now to the Standard Oil and American Tobacco cases, 
 does there appear any clear evidence that the court's expressed 
 intent to interpret the statute "in the light of reason" meant that 
 the range of its apphcability would be again restricted? No 
 definite answer to this question can be given, of course, except in 
 the light of subsequent decisions in border-line cases. The dictum 
 in the Oil case, embodjdng in general terms the court's interpre- 
 tation of the act, does not afford a satisfactory basis of inference. 
 
 Taking the decision at its face value, however, it does not seem 
 to come to quite the same thing as the minority opinion in the 
 Trans-Missouri case, although both were written by the present 
 Chief Justice. In that dissenting opinion it was held without 
 equivocation that only "unreasonable" contracts in restraint of 
 trade were condemned by the statute, and it was urged that to con- 
 strue the statute as excluding certain classes of contracts, such as 
 those which are collateral to a sale of property, while at the same 
 time stating that the statute covers every contract in restraint of 
 trade, was illogical. Had this minority opinion prevailed, it would 
 have given to the statute all the elasticity that could by the broad- 
 est interpretation be found in the common law. The courts would 
 have been free to pronounce upon the legality of particular kinds 
 of combinations according to their view of public policy. The 
 determination of public pohcy would have been influenced, of 
 course, by precedents, but many modern forms of combinations 
 are too new, and precedents consequently too uncertain to have 
 given necessarily and immediately any hard-and-fast rule of dis- 
 crimination between permissible and illegal combinations. For 
 better or worse, the road to judicial legislation would have been 
 opened. 
 
 The Standard Oil decision did not exphcitly state that only 
 unreasonable contracts in restraint of trade were condemned by the 
 
 ^ Ellis V. Inman, Poulsen & Co., 131 Fed. 182; Loder v. Jayne, 142 Fed. loio; 
 Dr. Miles Medical Co. V.John D.Park &" Sons Co., i6^Fed. 803; 220 U.S. 373. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 209 
 
 law. Its emphasis was on the thesis that the statute must be 
 interpreted "in the Ught of reason," and that the "rule of reason" 
 must be applied in determining whether a particular combination 
 is within the scope of the law's condemnation. It is true that 
 "undue" restraint of trade was specified as the thing prohibited, 
 but the stress was not put on this point. There is nothing in the 
 decision really inconsistent with the minority opinion in the Trans- 
 Missouri case, but it went farther than that holding, in that it 
 identified restraint of trade with monopoly. 
 
 It was pointed out that with the gradual narrowing of the older 
 common-law definition of restraint of trade as any voluntary 
 restraint put by an individual on his right to carry on his trade, 
 and the accompanying broadening of the original technical mean- 
 ing of monopoly so as to include engrossing, the two concepts 
 restraint of trade and monopoly came to be blended. Interpreting 
 the statute, then, as using common-law phrases with a common- 
 law meaning, it was held that its first section, declaring contracts, 
 combinations, and conspiracies in restraint of trade illegal, and 
 its second section, making it illegal to monopolize or to attempt to 
 monopolize any part of interstate trade or commerce, are mutually 
 explanatory. "Undoubtedly," said the court, "the words 'to 
 monopolize' and 'to attempt to monopolize' as used in the section 
 reach every act bringing about the prohibited results." 
 
 If this joining of the first two sections of the act could be accepted 
 as final, the definition of the word "monopolize" would be the only 
 serious difficulty in the interpretation of the statute. The courts 
 would be left free to determine whether a given restraint of trade 
 is against pubHc pohcy, but the standard by which public policy 
 should be gauged would be definitely prescribed. In certain 
 respects, at least, this hypothetical result may be taken as a descrip- 
 tion of the actual state of law. The particular form which a com- 
 bination adopts counts for nothing either one way or the other. Its 
 purpose and the methods used in attaining its purpose are the 
 crucial facts. If "judicial legislation" means the determination 
 of pubHc poHcy in particular instances by the courts, the Standard 
 Oil decision did not give it much scope. 
 
 And yet this is not all there is to the matter. There are impor- 
 tant classes of cases to which the Sherman act has been held and is 
 
2IO JOURNAL OF POLITICAL ECONOMY 
 
 , still held to apply in which the presence or absence of monopoly or 
 
 of monopoHstic intent is not the determining factor. In other 
 
 ; words, under the accepted interpretation of the statute, there may 
 
 , be "restraint of trade" where there is no "restraint of competition." 
 
 Most of these cases have to do with interference with commerce 
 
 on the part of labor unions. 
 
 In the Sherman act the common-law phrase "restraint of 
 trade" became "restraint of trade or commerce among the several 
 states, or with foreign nations." This and the fact that the act 
 rests upon the federal power over interstate commerce have given 
 a decided twist to its interpretation. The contracts in restraint 
 of trade found in the early common-law cases were agreements by 
 which an individual bound himself to refrain from pursuing a 
 specified calling, and the evils involved were supposed to reside 
 in the partial loss of the power of supporting one's self and of 
 contributing to the welfare of the community. Later, agreements 
 tending to hmit or suppress competition as an efi&cient price-fijcing 
 force were also classed as contracts or combinations in restraint of 
 trade. But, so far as I can find, the effect of such agreements upon 
 the volume of commerce was never made the factor determining 
 their illegality. 
 
 In one of the early cases under the Sherman act' it was held by 
 the Circuit Court for the District of Massachusetts that the words 
 "commerce" and "trade," as used in the statute, are synonymous: 
 
 Careless or inapt construction of the statute .... will, if followed out 
 logically, extend into very large fields, because .... the inevitable result 
 will be that the federal courts will be compelled to apply this statute to all 
 attempts to restrain commerce among the states, or commerce with foreign 
 nations, by strikes or boycotts, and by every method of interference by way 
 of violence or intimidation. It is not to be presumed that Congress intended 
 thus to extend the jurisdiction of the courts of the United States without very 
 clear language.^ 
 
 But within a month another circuit court had granted an injunction 
 against a combination of striking working-men on the ground that 
 in refusing to work they were violating the statute by interfering 
 with the movement of goods in interstate commerce.^ The opinions 
 
 ' United Slates v. Patterson, 55 Fed. 605. ^ 55 Fed. 641. 
 
 ' United States v. W orhingmen' s Amalgamated Council, 54 Fed. 994. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 211 
 
 in the cases arising out of the railway strike of 1894 contain expli- 
 cit recognitions of their departure from common-law precedents. 
 Thus, "The term 'restraint of commerce' was used in its ordinary, 
 business understanding and acceptation."' Another statement is: 
 
 I am unable to regard the word "commerce," in this statute, as synony- 
 mous with "trade" as used in the common-law phrase "restraint of trade." 
 In its general sense, trade comprehends every species of exchange or dealing, 
 but its chief use is "to denote the barter or purchase and sale of goods, wares, 
 and merchandise, either by wholesale or retail," and it is so used in the phrase 
 mentioned. But "commerce" is a broader term .... and, as used in this 
 statute, .... should not be given a meaning more restricted than it has 
 in the Constitution.^ 
 
 Even more specific is the following: 
 
 The primary object of the statute was, undoubtedly, to prevent the 
 destruction of legitimate and healthy competition in interstate commerce by 
 individuals, corporations, and trusts, grasping, engrossing, and monopolizing 
 the markets for commodities. But its provisions are broad enough to reach 
 a combination or conspiracy that would interrupt the transportation of such 
 commodities and persons from one state to another.^ 
 
 For present purposes it is immaterial whether the logic of these 
 opinions is sound, or whether the Sherman act was seized upon and 
 distorted somewhat in order to meet a great emergency.'' But 
 even if these interpretations of the scope of the act were not illogical, 
 it cannot be held that they were in any sense necessary. Whether 
 the statute was intended to apply to labor combinations may be 
 a matter of doubt, but there is no evidence in the congressional 
 debates that it was anticipated that the statute would prohibit 
 interference with commerce as a thing distinct from restraint of 
 trade. Of course these decisions make much of the use of the term 
 "conspiracy" in the statute, but even if that word means in this 
 
 ' United Stales v. Elliott, 64 Fed. 30. 
 
 ' United States v. Debs, 64 Fed. 749. 
 
 3 United States v. Cassidy, 67 Fed. 705. 
 
 ■• There may be some significance in the fact that the Supreme Court, in the only 
 one of these cases which reached it {In re Debs, 158 U.S. 564), did not rest its findings 
 upon the Sherman act, but on the general federal powers over interstate commerce 
 and the transmission of the mails. But its subsequent opinions have been such as 
 virtually to imply an approval of the broad scope given to the Sherman act by 
 the lower courts in the railroad strike cases. 
 
212 JOURNAL OF POLITICAL ECONOMY 
 
 connection anything more than "combination,"' the decisions 
 nevertheless really hinge upon the meaning attached to the word 
 "commerce." 
 
 Similar in some respects are the decisions of the Supreme Court 
 in two cases that should be sharply differentiated from most of the 
 cases under the statute that have come before that body. In 
 Loewe v. Lawlor^ a boycott instituted by the D anbury Hatters' 
 Union was held to constitute a conspiracy in restraint of interstate 
 commerce. It was immaterial, said the court, that there was no 
 suppression of competition, and it was even immaterial that there 
 was no direct physical obstruction to the movement of commerce. 
 It was sufficient that the boycott tended to check the free flow of 
 goods from one state to another. In the recent case of Eastern 
 State Lumber Association v. United States^ an arrangement by which 
 the members of an association of retail lumber dealers were informed 
 of the names of wholesale dealers who sold directly to consumers 
 was held to be a similar restraint upon the movement of interstate 
 commerce, although no suppression of competition was alleged. 
 
 Doubtless in many jurisdictions the actions condemned in these 
 two cases would have been held to be offenses under the common 
 law, but not because they "restrained trade" and certainly not 
 because they interfered in any way with the general movement of 
 commerce. 
 
 The fact seems to be that the Sherman act is held to apply to 
 two very different classes of things. ' Interference with the move- 
 ment of commerce is one thing, and suppression of competition is 
 
 ' Justice Holmes held in his dissenting opinion in the Northern Securities case 
 (193 U.S. 403) that "the words hit two classes of cases, and only two — contracts in 
 restraint of trade, and combinations or conspiracies in restraint of trade." Cf. Rice 
 V. Standard Oil Co., 134 Fed. 464. This point is reviewed in Tribolt v. United States, 
 II Ariz. 436; 95 Pacif. 85. 
 
 ' 208 U.S. 274. 
 
 5 234 U.S. 600. The older case of Montague &• Co. v. Lowry, 193 U.S. 38, turned 
 partly upon similar considerations, although in that case the element of monopoly was 
 not entirely absent. And in United States v. Patten, 226 U.S. 541, the court said: 
 "Sec. I of the act, upon which the counts are founded, is not confined to voluntary 
 restraints, as where persons engaged in interstate trade or commerce agree to suppress 
 competition among themselves, but includes as well involtmtary restraint, as where 
 persons not so engaged conspire to compel action by others, or to create artificial 
 conditions, which necessarily impede or burden the due course of such trade or com- 
 merce or restrict the common liberty to engage therein." 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 213 
 
 quite another thing. In point here is the extraordinary decision 
 of the Circuit Court of Appeals in Whitwell v. Continental Tobacco 
 Co.,^ which held that under a correct interpretation of the second 
 section of the act "no attempt to monopoHze a part of commerce 
 among the states is made illegal or punishable unless the necessary 
 effect of that attempt is to directly and substantially restrict com- 
 merce among the states." Probably this decision (which refused 
 to see in an attempt to monopolize by the use of a factor's agree- 
 ment of the most flagrant sort any evidence of the violation of the 
 act) would not now be, accepted as good law. But it draws a sound 
 distinction between the suppression of competition and the hinder- 
 ing of the movement of commerce. Few economists would care 
 to maintain that competition would always have the advantage 
 over monopoly in respect to the volume of commerce it would 
 create. It seems then that, despite the language of the Standard 
 Oil decision, the identification of "restraint of trade" and "monopo- 
 Hzing" or "attempting to monopolize" is not complete. The 
 Sherman act, as at present interpreted, condemns two very different 
 sorts of offenses, r^^ y 
 
 The Sherman act is a general statute, declaratory of public 
 poKcy. As such it must be judged, it seems to me, by (i) the 
 soimdness of the public policy which it declares, (2) the accuracy 
 and completeness with which it declares that public policy, and (3) 
 the adequacy of the mechanism which it provides for making that 
 pubhc poHcy effective. What more I have to say in this first paper 
 will have to do with these three aspects of the statute. 
 
 I. There can be little doubt but that the public poHcy which 
 the act was intended to embody is that competition should be 
 maintained, artificial monopoly destroyed, and its growth prevented. 
 In the congressional debates attending its enactment the great in- 
 dustrial combinations of the day were singled out by name as the 
 things against which it was directed. And it is clear from the 
 debates that the hostihty toward these industrial combinations was 
 especially directed against (i) their supposed power over prices 
 and (2) their aggressive suppression of competition. Whatever the 
 economic advantages of monopoly per se may be, there will be Httle 
 
 ' I2S Fed. 4S4. 
 
214 JOURNAL OF POLITICAL ECONOMY 
 
 question of the soundness of the poHcy which would attempt to 
 deprive it of its power for evil in these two particulars.' 
 
 But it is often urged that to attempt to maintain competition by 
 prohibiting attempts to monopolize is illogical, since monopoly is 
 the goal of competition, and achieved monopoly is merely the result 
 of thoroughly successful competition.^ The aim of each competitor 
 is to aggrandize his own business at the expense of his rivals, and just 
 so far as he leaves his rivals in partial possession of the field he falls 
 short of complete success. The simplicity of this reasoning makes 
 it attractive, but it is too simple to fit the facts of the case. We 
 need not discuss at this point the pertinent question as to whether 
 a permanent industrial monopoly can be achieved by the use of 
 permissible competitive methods by a business not enjoying any 
 special advantages not open to its competitors aside from the 
 possession of a larger amount of capital, for the matter can be dis- 
 posed of in a simpler fashion. There is a substantial difference 
 between competing and "attempting to monopolize" in purpose 
 and consequently in methods. The ordinary competitor, it will 
 be conceded, does not have the establishment of monopoly in mind 
 
 ' Most of the more weighty discussions of the economic advantages of monopoly 
 have to do with the effect of monopoly upon the aggregate production of wealth 
 measured in terms either of subjective satisfaction or of objective commodity units. 
 Even from this point of view the case for monopoly is exceedingly dubious and, at 
 best, has a validity that is restricted and conditioned in many ways. Moreover, 
 such considerations are relatively unimportant compared with matters like the effect 
 of monopoly upon distribution, upon the scope for individual initiative, upon economic 
 opportunity in general, and upon a host of social and political relations. In short, 
 it is a question less of the relative "economy" of monopoly or competition than of 
 the kind of economic organization best calculated to give us the kind of society we 
 want. Until our general social ideals are radically changed, it will take more than 
 economic analysis to prove that it would be sound public policy to permit monopoly 
 in that part of the industrial field where competition is possible. 
 
 ' Such was the opinion of a number of witnesses before the Senate Committee on 
 Interstate Commerce, 62d Congress. See for example the Hearings pursuant to Sen. 
 Res. 98, pp. 143 iff. The latest of the very few expressions of similar views by 
 economists is to be found in Professor R. L. Liefmann's article entitled "Monopoly 
 or Competition as the Basis of a Government Trust Policy," Quarterly Journal of 
 Economics, XXIX, 308 (February, 1915). For a judicial opinion to the same effect, 
 see Whilwell v. Continental Tobacco Co., 125 Fed. 462, where it was even held that 
 "every sale and every transportation of an article which is the subject of interstate 
 commerce is a successful attempt to monopolize that part of this commerce which 
 concerns that sale or transportation." In general, however, this misuse of the word 
 "monopolize" has no better standing in law than it has in economics. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 215 
 
 as an end. He strives to increase his profits by increasing his trade, 
 and in so doing he usually endeavors to acquire as much as he can 
 of the custom enjoyed by his competitors. But the thing directly 
 sought is such increase of his profits as is possible under competitive 
 conditions. The effect of his poHcies on his competitors is second- 
 ary and, generally speaking, indirect. The phrase "attempting 
 to monopolize" on the other hand is meaningless if it does not refer 
 to conscious efforts to get rid of the limitations which competition 
 sets upon one's abihty to buy and sell at such prices and on such 
 terms as one pleases. The elimination of competition through the 
 absorption or crippling of competing establishments becomes the 
 direct and primary object, and the methods used are adapted to 
 this end. The contention that "to compete" and "to attempt 
 to monopoHze" are synonymous is clearly unsound. They are 
 definitely antagonistic in principle. 
 
 2. Is the Sherman act an accurate expression of the public 
 policy which it seeks to declare? If by accuracy is meant pre- 
 cision, it has little of it. It was, in its inception, a lawyer's statute, 
 speaking in the language of the common law. It was drafted by 
 the Judiciary Committee of the Senate as a substitute for the Sher- 
 man bill, which, together with a mass of proposed amendments, 
 had been referred to that committee. These amendments included 
 various lists of particular offenses and various delimitations of the 
 precise field of application. It was evident that it would be difii- 
 cult for Congress to come to an agreement on any one set of par- 
 ticularizations. Moreover, the general phrases of the Sherman 
 act were chosen intentionally, we are told by one of its framers, 
 in order that the responsibility of determining its exact scope might 
 be left to the courts.^ For seven years its interpretation was 
 uncertain. The decisions in the lower courts were conflicting, and 
 the Supreme Court's holdings purely negative. Nor did the 
 Trans-Missouri decision help matters much. The words "re- 
 straint of trade" still remained to be defined, and in the next thir- 
 teen years the work of definition progressed only so far as the 
 
 ' George F. Edmunds, "The Interstate Trust and Commerce Act of 1890," 
 North American Review, CXCIV, 801 (December, 1911). Cf. A. H. Walker, History 
 of the Sherman Law, chap, i, ii; and O. W. Knauth, The Policy of the United States 
 towards Industrial Monopoly, chap. i. 
 
2i6 JOURNAL OF POLITICAL ECONOMY 
 
 particular cases decided were typical of classes of possible cases. 
 The standard of public policy announced in the Standard Oil de- 
 cision was the first general criterion of the scope of the act. There 
 is nothing in subsequent decisions which indicates any tendency on 
 the part of the court to depart from that standard. 
 
 With restraint of trade held to be the general equivalent of 
 monopolizing and attempting to monopolize, there is small doubt 
 that the present interpretation of the statute is in harmony with 
 the purposes which were in mind at the time of its enactment. 
 The great industrial combinations against which it was hoped that 
 the statute would be efficacious have for the most part a more thor- 
 oughly unified and compact form than they had in 1890. Whether 
 such consolidations are contracts, combinations, or conspiracies 
 in restraint of trade within the meaning of the common-law terms 
 may be a matter of doubt.^ But there is now no question that, 
 if their purpose is monopoly, they come within the condemnation 
 of the Sherman act. Nor does it appear that in any unimportant 
 respects the statute has been weakened. There is no reason to 
 think, for example, that price agreements and agreements to restrict 
 output, whether of local or of general scope, are not as illegal now 
 as they have been at any time.^ 
 
 As a general expression of the public policy which it is supposed 
 to embody, the Sherman act is adequate. The difficulty is that 
 it goes too far. In the first place, as we have already seen, it is so 
 worded that it is used as a weapon against strikes, boycotts, and 
 other concerted efforts to interfere with the conduct of any business 
 
 ' Cf. the argument of Justice Holmes to the effect that under the common law 
 contracts in restraint of trade are contracts with strangers to the contractor's busi- 
 ness, and that combinations and conspiracies in restraint of trade have the purpose 
 of keeping strangers to the agreements out of business. (Northern Securities Co. v. 
 United States, 193 U.S. 404, 410.) 
 
 = The following extract from the opinion of the Circuit Court in the "bath-tub 
 trust" case is directly in point: "Some men beheve that price agreements should be 
 sustained by the courts, unless they are shown to be against the public interest. 
 Others hold that they may be permitted only when it is afi&rmatively shown that they 
 promote the public interest. Still others say that a price agreement pure and simple 
 is always illegal. That the Supreme Court has declared the last of the above-stated 
 contentions to be the law is conclusive here." — United States v. Standard Sanitary 
 Mfg. Co., igr Fed. 182. See also the decision of the Supreme Court in the same case, 
 226 U.S. 20, and Straus and Straus v. American Publishers' Association, 231 U.S. 222. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 217 
 
 undertaking which ships its goods across state lines or to other 
 countries. These things may be undesirable; very likely some of 
 them are. But they are so far out of line with the other things 
 condemned by the Sherman act, and in most instances have so little 
 relation to " monopoHzing, " that the Sherman act ought to be so' 
 amended as to cut them out of the list of offenses which it condemns.' 
 In some cases they clearly run counter to current conceptions of 
 public policy. In other cases this is not so clear. At any rate, if 
 federal law is still to condemn all or some of these things it should 
 take the form of separate and carefully drawn statutes. Moreover, 
 practices like those condemned in the Eastern States Lumber 
 Association case, mentioned above, probably fall within the juris- 
 diction of the new Federal Trade Commission. 
 
 In the second place, the apphcation of the Sherman act to rail- 
 roads is inconsistent with the standards of pubhc policy embodied 
 in the Interstate Commerce act. We regulate railroad rates and 
 services on the assumption that railroads are natural monopolies, 
 and that combinations or rate agreements are inevitable. But at 
 the same time we condemn railroad combinations and rate agree- 
 ments, and (as in the New Haven case) bring criminal indictments 
 against the men responsible for such combinations.^ From rail- 
 roads we exact the observance of two mutually inconsistent stand- 
 ards of morality. The real evils in railroad combinations are 
 matters of corporation finance and of the equilibrium of the 
 equities of various sorts of bondholders and stockholders. These 
 evils should be dealt with by statutes appropriate to the purpose, 
 and the Sherman act should be so amended as to be relegated to its 
 proper field of preventable industrial "monopolizing." -^^"^ 
 
 Finally, there comes the question of whether even within the 
 industrial field we want to prohibit monopoly as well as aggres- 
 sive monopolizing. Probably a monopoly achieved merely by the 
 superior efiicacy of a formerly competitive business unit (if such 
 
 ' This could be done by omitting the word "or commerce" from the first three 
 sections of the act. Or if this should be thought to raise a doubt as to the statute's 
 constitutionality, the words "in restraint of trade or commerce" might be changed 
 to read "in restraint of competition in commerce." 
 
 ' This, of course, has nothing to do with the questions relating to the way in which 
 the New Haven ofi&cers and directors discharged their trusteeship for the stockholders 
 of that road. 
 
2i8 JOURNAL OF POLITICAL ECONOMY 
 
 a thing were possible) would not be condemned by the courts as 
 a violation of the Sherman act. MonopoHes achieved by the 
 active suppression of competition are so condemned. What, then, 
 is the status of a monopoly built up merely by the peaceful union 
 or absorption of competitive units? Such combinations in the 
 railroad field have already been condemned in the Northern 
 Securities and Union Pacific cases. Should similar combinations 
 Ln the industrial field likewise be broken up, or (since unfair methods 
 are ruled out) should we put our trust in latent competition ? This 
 seems to have been in essentials the problem that was put before 
 the District Court in the International Harvester Company case,' 
 in which the decision was that the combination was condemned by 
 the statute.^ The decision of the Supreme Court in this case will 
 do much to fix the boundaries of the region to which the act applies. 
 On which side public pohcy properly lies is hard to determine. 
 On grounds of economic principle there is nothing to fear from such 
 combinations. But on the other hand there is not much to gain 
 from them, and in practice it would prove hard to draw a line 
 between peaceful combination and predatory combination for 
 monopoly's sake. Probably little harm would be done, and pos- 
 sibly some good, if no such line were drawn except to mark off one 
 combination as illegal even in the early stages of the monopolizing 
 process, and the other as legal except when combination has 
 reached the full measure of monopoly. 
 
 3. Does the Sherman act provide an efficient mechanism for 
 achieving its own ends? That its criminal features have been 
 relatively ineffective is generally admitted. In many cases these 
 criminal remedies could not have been enforced except at the 
 expense of the efficiency of the proceedings for the dissolution of 
 the combination. Furthermore, it has been found in practice that 
 it is a very difficult thing to secure a criminal conviction from a jury 
 for an offense so genefal, so abstract, so Httle tainted with a general 
 and customary imputation of immorality as "restraint of trade" 
 or "monopolizing." It is often said that "restraint of trade" is 
 no more indefinite than "fraud." This is very likely so, but there 
 
 ' 214 Fed. 987. 
 
 'This decision is criticized by Clarence E. Eldridge, "A New Interpretation of 
 the Sherman Act," Michigan Law Review, November, December, 1914 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 219 
 
 is the essential difference that fraud consists in, or is accompanied 
 by, simple and concrete actions, while restraint of trade is, as 
 I have suggested, general and abstract. It is significant that the 
 few convictions obtained under the Sherman act have been in cases 
 where the restraint of trade or of commerce consisted in, or was 
 evidenced by, specific and objectionable acts. There is no reason 
 to expect that it will ever be easy to secure convictions for restraint 
 of trade or monopolizing in cases where the separate steps taken 
 in the creation of the restraint are unobjectionable except as part 
 of the general scheme. As it is, the statute provides merely an 
 indirect and uncertain way of penalizing unfair competitive 
 methods.' I see no reason why the criminal remedies of the 
 Sherman act should be retained. 
 
 The proceedings in equity for the dissolution of a combination 
 have, on the contrary, proved to be increasingly effective, in the 
 sense that they have resulted in an increasing number of successful 
 prosecutions. It is contended by many that the enforced disso- 
 lution of a combination means generally a mere change in form 
 without diminution in monopoly power; that we are merely hunt- 
 ing the quarry from tree to tree. But in neither transportation 
 nor industry does it clearly appear that the newer and more unified 
 forms of consolidation would not have largely displaced the old, 
 even if the movement had not been hastened by legislation and by 
 decisions under the common law. Among other things tending 
 to this end the various strategic advantages of the consolidated 
 unit, the permanency and dependability of the newer forms of 
 combinations, making possible the adoption of business poKcies 
 based on long-time considerations, and the opportunities the single 
 corporation, whether holding company or not, affords for the 
 capitalization of promoters' profits may be mentioned. 
 
 But even if the Sherman act has itself been partly responsible 
 for the change in the form of combinations ( it cannot have increased 
 their number), it does not follow that in the future its history is to 
 repeat itself in this particular. It may be that, after a long chase, 
 the quarry has finally been driven into a corner. 
 
 Granting all this, is it proved that the mere dissolution of indus- 
 trial combinations accomplishes anything, especially in cases where 
 
 ' Neglecting its anomalous application to strikes and boycotts. 
 
220 JOURNAL OF POLITICAL ECONOMY 
 
 the equities in the combination are made the basis of a pro rata 
 distribution of the equities in its constituent parts? I cannot 
 attempt here to answer so large a question. But I may suggest 
 a few general conclusions: (i) The results must vary with the 
 nature of the business and the degree to which the aggressive sup- 
 pression of competition played a part in maintaining monopoly 
 conditions. The results must also vary with the degree to which 
 railway rates and other distributive conditions had been shaped 
 for the benefit of the combination. (2) Dissolution rarely comes 
 early enough — not until the monopolistic situation (if any exists) 
 has become more or less crystallized. This suggests the need of 
 emphasis upon methods rather than achieved results, upon monopo- 
 lizing rather than upon monopoly. (3) The operation of the statute 
 is intermittent. Dissolution should be carefully followed up, and 
 every step in the process of restoring normal conditions should be 
 carefully watched. This requires administrative machinery. (4) 
 The Sherman act needs supplementing. At certain points, at least, 
 this is accompUshed in the new anti-trust legislation which will be 
 considered in a subsequent paper. 
 
 But in its own field the Sherman act has a value all its own. 
 No matter how carefully drawn the rules of the game may be, no 
 matter how high the level set by the law for competition, new 
 business situations, new conditions are bound to arise, not covered 
 by specific statutes, and yet contrary to the generally accepted 
 public policy of the maintenance of competition within its own 
 proper field. The Sherman law, as a general declaration of public 
 poUcy, has an elasticity and adaptabihty to new situations of all 
 kinds not possible to legislation of a more specific sort. Its declara- 
 tion of pubKc poHcy is general enough so that it may gradually 
 grow in meaning and change in application through judicial decision 
 as the common law has grown and changed. So long as the pres- 
 ervation of competition in that large part of the industrial field 
 in which it is feasible is pubHc policy, why should we not, through 
 such a statute, continue to give to the federal courts jurisdiction 
 in cases involving the assertion of that public policy? But, it 
 needs amendment in the ways which have been indicated. 
 
 Allyn a. Young 
 Cornell Universiiv 
 
THE JOURNAL 
 
 OF 
 
 POLITICAL ECONOMY 
 
 Volume 23 ApvU IQI S Number 4 
 
 THE SHERMAN ACT AND THE NEW ANTI-TRUST 
 LEGISLATION. II 
 
 The new anti-trust legislation comprises two statutes, the 
 Federal Trade Commission act, signed by the President on Septem- 
 ber 26, 1914, and the so-called Clayton act, entitled "An act to 
 supplement existing laws agdnstunlawfulrestriiints and monopolies, 
 'a;nd for otherpurposes," signed on October 16, 1914. To some extent 
 the two statutes overlap, in other respects they are supplementary, 
 and the Clayton act also bears upon a variety of more or less unre- 
 lated matters which are not touched by the Trade Commission 
 act. Neither statute is so good a specimen of draftsmanship 
 as is the Sherman act, while the Clayton act, with its twenty- 
 six sections and its heterogeneous subject-matter, is a particularly 
 formless and unorganized piece of legislation. In statute-making, 
 defects of form are prone to be associated with defects of substance, 
 and there is reason to fear that there is such an association in the 
 new anti-trust legislation, and more especially in the Clayton act. 
 Graver defects than those of form might, in fact, be expected to 
 be found in any legislation originated, formulated, and shaped as 
 were these measures. 
 
 To approach the matter in. another way, I must confess my 
 own feeUng of doubt as to Just what general sort of change in the 
 business situation the new legislation is intended to accomphsh. 
 It is clear, of course, that these statutes reflect the general public 
 
 305 
 
3o6 JOURNAL OF POLITICAL ECONOMY 
 
 policy that is declared in the Sherman act; that is, that competitive 
 business conditions must be maintained and safeguarded. It is 
 also clear that the new statutes are more detailed and speciiic 
 in some of their condemnations than is the Sherman act. More- 
 over, additional administrative machinery is provided for the 
 enforcement of the announced public policy. But despite all this 
 it is not clear that the new legislation is based on any clear-cut 
 and definite convictions as to the shortcomings of the Sherman act 
 or as to the general principles on which supplementary legislation 
 should be based. This does not in itself condemn the new legisla- 
 tion, for the question of the wisdom and effectiveness of its separate 
 parts yet remains open. No one general purpose, but a variety of 
 different purposes, characterizes the new laws. This is again a 
 matter of origins and of legislative history. 
 
 The platform adopted at the Baltimore convention of the 
 Democratic party in 1912 declared for "a vigorous enforcement of 
 the criminal as well as the civil law against trusts and trust officials," 
 and demanded the enactment of "such additional legislation as 
 may be necessary to make it impossible for a private monopoly to 
 exist in the United States." It added: 
 
 We favor the declaration by law of the conditions upon which corporations 
 shall be permitted to engage in interstate trade, including, among others, the 
 prevention of holding companies, of interlocking directors, of stock watering, of 
 discrimination in price, and the control by any one corporation of so large a pro- 
 portion of any industry as to make it a menace to competitive conditions. 
 
 Regret was expressed that the Sherman act has received "a 
 judicial construction depriving it of much of its efficacy," and 
 legislation was favored restoring to that statute "the strength of 
 which it has been deprived by such interpretation." 
 
 In the presidential campaign which followed much emphasis 
 was put upon the Democratic party's attitude of hostihty to 
 monopoly; partly, no doubt, by way of contrast to the program 
 of regulation announced by the Progressive party. But there was 
 Httle talk of particular measures; it was such things as "the 
 emancipation of business" as one part of the "new freedom" which 
 figured most largely in the campaign.' After Mr. Wilson's election 
 
 ' Cf. Woodrow Wilson, The New Freedom, chaps, viii, xi. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 307 
 
 and inauguration no information was given out with respect to the 
 anti-trust law program of the administration until the revision of 
 the tariflf and of the banking law had been achieved. Early in 
 January, 1914, it was announced that Chairman Clayton of the 
 House Committee on the Judiciary had drafted tentative bills 
 covering the more important features of the President's anti-trust 
 proposals.' On January 14, after a conference between President 
 Wilson and the chairmen and some of the other Democratic mem- 
 bers of the House Committee on the Judiciary and of the Senate 
 Committee on Interstate and Foreign Commerce, a prehminary 
 statement of the legislative program was given out. On January 
 20, following another conference with the same committeemen, the 
 President addressed Congress on the subject of the proposed legis- 
 lation, explaining its general outhnes and warmly advocating its 
 enaction. Such legislation should include, the President said, 
 (i) the prohibition of interlocking directorates in banking, railroad, 
 industrial, and pubHc-service corporations, (2) provisions for reg- 
 ulation of railroad-security issues by the Interstate Commerce 
 Commission, (3) the creation of an interstate trade commission, 
 (4) the penalizing of ofi&cers .and directors or other iadividuals 
 responsible for the illegal activities of corporations, and (5) giving 
 to private litigants the right to sue upon the basis of the findings 
 in government suits, and permitting the statute of limitations to 
 run against such individuals only from the date of the conclusion of 
 the government action. The message further suggested, without 
 positive recommendation, that limitations might be put upon the 
 voting power of individuals or groups of individuals holding the con- 
 trolling interests in supposedly competing companies. 
 
 ' For that important part of the legislative history of the new statutes which lies 
 outside the formal proceedings recorded in the Congressional Record I have had to rely 
 very largely upon the Washington dispatches and correspondence in the daily papers. 
 In particular I have examined the files of the New York Evening Post, the New York 
 Times, and the New York Journal of Commerce. I have tried to refer to definite 
 dates frequently enough to make it easy for anyone to check up my statements. It 
 cannot be hoped that an account based on newspaper sources is entirely free from error, 
 but I imagine that its general outlines are fairly accurate. So far as possible, of 
 course, I have drawn my information from the Congressional Record, the various com- 
 mittee hearings, and prints of the bills in their successive stages. 
 
3o8 JOURNAL OF POLITICAL ECONOMY 
 
 These recommendations were partly in line with the statements 
 of the Baltimore platform. They did not, like the platform, con- 
 demn mere size "as a menace to competitive conditions," nor did 
 they contemplate restoring to the Sherman act an effectiveness 
 of which, in fact, the decisions of the courts had never deprived it.' 
 But in the third and fifth particulars mentioned above, the Presi- 
 dent's recommendations went farther than the party platform. 
 The principal departure was in the advocacy of the establishment 
 of an interstate trade commission, for the Democratic party had 
 never declared itself in favor of a commission, although the crea- 
 tion of a commission was supported in both the Republican and 
 the Progressive national platforms of 191 2. 
 
 After the President's address had been deUvered it was an- 
 nounced that his proposals would be embodied in five different 
 bills, as follows: (i) the Interstate Trade Commission bill; (2) the 
 Interlocking Directorates bill; (3) the Definitions bill, intended 
 "to give further and more explicit legislative definition to the 
 policy and meaning of the existing anti- trust law"; (4) the Trade 
 Relations bill, deahng primarily with unfair competition and with 
 matters of procedure in individual suits under the Sherman act; 
 and (5) a Railway Securities bill. 
 
 The first four bills, it was announced, had been drafted by 
 Representative Clayton of Alabama, chairman of the House Com- 
 mittee on the Judiciary, in consultation with Representatives CarHn 
 of Virginia and Floyd of Arkansas, ranking Democratic members 
 of the committee. The preparation of the Railway Securities 
 bill was intrusted to the House Committee on Interstate and 
 Foreign Commerce, whose chairman, Representative Adamson of 
 Georgia, had already introduced a bill dealing with the same sub- 
 ject. It had been expected by the members of the House Com- 
 mittee on the Judiciary that their committee would consider, 
 amend, and report upon the other four measures, but a vote of the 
 
 ' This mistaken interpretation of the significance of the decisions of the Supreme 
 Court in the Oil and Tobacco cases is expressed in many bills that have been intro- 
 duced into Congress since those decisions. Most important of these, perhaps, were 
 the bills introduced by Senator LaFoUette in the 6ist and 62d Congresses. In the 
 recent session of the 63d Congress Representative Stanley of Kentucky was particularly 
 active in the support of legislation designed to repair the damage supposed to have 
 been done in these decisions. See his testimony before the House Committee on 
 the Judiciary, Hearings, p. 65. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 309 
 
 House, taken at the conclusion of the President's address, gave 
 the Committee on Interstate Commerce jurisdiction over the Inter- 
 state Trade Commission bill as well as the Railway Securities bill' 
 The four bills prepared by the House Committee on the Judi- 
 ciary^were made pubHc, in tentative form, on January 22. The 
 Definitions bill and the Trade Relations bill contained many of 
 the features and much of the phraseology of two of the "Seven 
 Sisters" bills, enacted in New Jersey when Mr. Wilson, then 
 President-elect, was governor of that state.^ The Interlocking 
 Directorates bill, applying as it did to banks and industrial cor- 
 porations as well as to railroads and to corporations contracting 
 with them, showed distinctly the influence of the Pujo committee's 
 investigation of the money trust in 191 2 and possibly of the, dis- 
 closures of abuses of trust on the part of the officers and directors 
 of several railroads.'' The Interstate Trade Commission bill, 
 drafted in consultation with Senator Newlands, chairman of the 
 Senate Committee on Interstate Commerce, bore a close resem- 
 blance to the bill introduced by Senator Newlands in the Sixty- 
 second Congress, as tentatively amended by his committee.^ But 
 it contained some new features.* 
 
 ' A similar conflict over jurisdiction occurred in the Senate. There it was the 
 Committee on Interstate and Foreign Commerce which had been selected to give 
 general supervision to the administration measures, but the chairman of the Senate 
 Committee on the Judiciary early announced that since it was that committee which 
 had been principally concerned with the framing of the Sherman act (as well as the 
 Interstate Commerce act) he would insist that all bills amending or supplementing the 
 Sherman act be reported to it, although the Trade Commission and Interlocking 
 Directorate biUs might be referred to the other committee. Very likely the reason 
 that the legislative supervision of the administration's program was first intrusted to 
 the House Committee on the Judiciary and the Senate Committee on Interstate 
 Commerce is that both of these committees had been actively concerned with anti- 
 trust measures in the preceding Congress. 
 
 ' Principally, it is understood, by Representatives Clayton, Carlin, and Floyd. 
 
 3 Laws of New Jersey, igrs, chaps. 13, 15. 
 
 4 But the Democratic national platforms of both 1908 and I9r2 contained declara- 
 tions in favor of the prohibition of interlocking directorates. 
 
 s Senate Report No. 7326, 62A. Cong., 3d sess., p. 21. 
 
 ' Attempts to increase this list of bUls by securing administrative indorsement of a 
 measure providing for the public regulation of stock exchanges were unsuccessful. If 
 the press accounts are to be trusted, President Wilson chose to base his refusal to 
 indorse such a measure upon the ground that the matter with which it dealt was not 
 mentioned in the Baltimore platform. But as much could have been said of the Trade 
 Commission bill and of the major portions of the Definitions and Trade Relations bUls. 
 
3IO JOURNAL OF POLITICAL ECONOMY , 
 
 Because this last-named bill had to be referred to another 
 House committee it was introduced at once (January 22) in both 
 the House and Senate and was by each body referred to its Com- 
 mittee on Interstate Commerce. It was for this reason, possibly, 
 that criticism first centered on the trade commission proposals. 
 Both in and out of Congress there was less objection to the estab- 
 Kshment of a trade commission than to any other part of the pro- 
 posed legislation. The only questions seriously raised related to 
 the powers and functions which should be given such a commission. 
 The bill as first introduced provided for an interstate trade com- 
 mission of five members, which was to absorb the Bureau of Cor- 
 porations, and of which the Commissioner of Corporations was to be 
 the first chairman. It was to be empowered (i) to require regular 
 and special reports from all corporations engaged in interstate 
 commerce (except common carriers), upon such matters and in 
 such form as it should prescribe; (2) to subpoena witnesses and 
 require the production of books and papers of all sorts; (3) to insti- 
 tute inquiries upon its own initiative or upon complaint to ascertain 
 whether any corporation subject to the act was so organized and 
 was conducting its business in such a way as to violate the Sherman 
 act or any supplementary statutes, and to inform the Attorney- 
 General of any violations so discovered; (4) to make similar 
 investigations at the request of the Attorney-General or of a cor- 
 poration itself, and, in case a violation of the law was discovered, 
 to prepare a finding prescribing the changes and readjustments 
 necessary to effect compliance with the law, in order that the finding 
 might be used by the Attorney-General in terminating the unlaw- 
 ful condition either by agreement with the corporation or by suit; 
 (s) to report (at the request of the court) upon any aspect of the 
 litigation or of the proposed decree in suits in equity under the 
 Sherman act, and (6) to make an annual report containing informa- 
 tion collected by it and recommendations for additional legislation. 
 
 The commission was to be very much Hke the Bureau of Cor- 
 porations, but with added dignity and increased powers. Its 
 primary function was to be that of aiding the Department of Justice 
 and the courts in the enforcement of the Sherman act and any 
 supplementary statutes. In current discussion much emphasis 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 311 
 
 was put upon the usefulness of such a commission in planning the 
 reorganization of monopoHstic combinations and especially in the 
 preparation of voluntary agreements for reorganization or dissolu- 
 tion and of "consent decrees." It was evidently expected that 
 the Department of Justice would continue to be as successful as it 
 has been in the past few years in securing the consent of corpora- 
 tions and combinations to the entering of decrees against them.' 
 
 The criticisms of the Trade Commission bill were of various 
 sorts. Many critics thought that there was no necessity of subject- 
 ing small business enterprises engaged in interstate commerce to 
 the control of the commission. Objections were also urged against 
 the "inquisitorial powers" of the commission in respect to making 
 all kinds of information about the conduct of business undertakings, 
 including business secrets, matters of pubhc record. It was not 
 fair, it was said, to quote as a precedent the similar powers given 
 to the Interstate Commerce Commission, for that commission 
 dealt only with quasi-pubHc corporations. On the other hand, the 
 proposed statute did not go far enough to satisfy the radicals who 
 wanted the commission empowered to regulate definitely the busi- 
 ness operations of large combinations, or those less radical persons 
 who wanted the commission empowered to grant clean bills of 
 health to existing or proposed combinations or contracts in restraint 
 of trade, which would carry with them immunity from prosecution 
 under the Sherman act. 
 
 There was no agreement in favor of the bill in either the Senate 
 or House Committee on Interstate Commerce, and it developed that 
 Attorney-General McReynolds, who had not been consulted with 
 respect to the original drafts of any of the proposed laws, felt that 
 the powers of initiative proposed to be given to the commission 
 might lead to some conflict with the Department of Justice in the 
 enforcement of the anti-trust laws. On February 16, the House 
 conamittee, which had been holding hearings on the bill since 
 January 30, turned the bill over for redrafting to a special sub- 
 committee of which Representative Covington of Maryland was 
 
 I This has been possibly the most significant recent development in the enforce- 
 ment of the Sherman act. For a list of recent cases so settled see the Annual Report 
 of the Attorney-General, 1914, p. 12. There is a good discussion of the matter in the 
 testimony of Mr. F. H. Levy before the House Committee on the Judiciary, Hearings, 
 p. 231. 
 
312 JOURNAL OF POLITICAL ECONOMY 
 
 made chairman. The revised measure (the "Covington bill") was 
 not reported till March i6. It curtailed the powers of the proposed 
 commission by providing (i) that annual reports should be required 
 only from corporations with a capital of more than $5,000,000, 
 smaller corporations being required to furnish such information only 
 if belonging "to any class of corporations which the commission 
 may make," (2) that no information obtained by the commission 
 might be made public without its authorization, and (3) that 
 investigations to determine the existence of violations of the anti- 
 trust laws were to be made only at the direction of the President, 
 the Attorney- General, or either House of Congress. The number 
 of commissioners was reduced to three, and it was no longer pro- 
 vided that the Commissioner of Corporations should become ex 
 ofi&cio a member of the new commission. This measure would have 
 made the commission even more distinctly an arm of the Depart- 
 ment of Justice, and in some respects its powers would have been 
 less than those of the Bureau of Corporations. 
 
 In the meanwhile the Senate Committee on Interstate Com- 
 merce had been considering the original Clayton-Newlands Trade 
 Commission bill, but had shown a disinclination to report it out 
 as a separate measure. Some of the members of the committee 
 thought that while the inquisitorial features of the bill went too 
 far, in other respects insufficient power was given to the commission. 
 Senators Cummins and Clapp, radical Republicans, became dis- 
 satisfied with the way in which the majority members of the com- 
 mittee took things into their own hands, and for a while withdrew 
 from the discussions of the bill. The principal objections raised 
 in this committee were to the other tentative measures which were 
 still under discussion in the House Committee on the Judiciary. 
 Particularly it was felt that the Definitions and Trade Relations 
 bills would not strengthen the Sherman act. So it was proposed 
 to formulate an omnibus measure which should cover the subjects 
 of the trade commission, interlocking directorates, capitalization, 
 and holding companies.^ This bill was to be reported to the 
 Senate as a substitute for any bills which the House might pass. 
 
 " The preparation of this measure was intrusted to a subcommittee, of which 
 Senators Newlands and Cummins were active members. The bill was reported by 
 the subcommittee to the full committee on May i. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 313 
 
 On May 22 the House, sitting as a committee of the whole, 
 approved the Covington bill and on June 5 it was passed.' But 
 the other pending anti-trust measures were passed by the House 
 on the same day, and when these came to the Senate only the 
 Covington bill and a railway securities bill were referred to the 
 Committee on Interstate Commerce, the other measures being 
 referred to the Judiciary Committee. Thus deprived of its juris- 
 diction over many of the matters covered in its proposed omnibus 
 bill, the Committee on Interstate Commerce decided to report only 
 its first eight sections, dealing with the trade commission. 
 
 But yet another factor had to be taken into account. On April 
 13 Representative Stevens of New Hampshire had introduced a 
 trade commission bill as a substitute for the Covington bill which 
 had already been favorably reported by the House Committee on 
 Interstate Commerce, of which he was a member. In most respects 
 it was much like the Covington bill, but it added two important 
 administrative functions to the powers of investigation for which 
 the Covington bill provided. These additional powers were (i) to 
 compel the use of a uniform system of accounts by corporations 
 making aimual reports to the commission, and (2) to issue orders 
 restraining the use of unfair methods in competition. This bill 
 failed to secure consideration by the House, and on May 22 that 
 body defeated by a decisive vote a proposed amendment to the 
 Covington bill, providing for a uniform accounting system. The 
 Stevens bill, in fact, was not more seriously considered than any 
 other of the scores of anti-trust bills embodying the views of indi- 
 vidual members of Congress. 
 
 But on June 12 Mr. Stevens, in company with Senator HoUis 
 of New Hampshire and Mr. Louis D. Brandeis, whose views were 
 expressed in the Stevens bill, conferred with President Wilson. 
 
 I The vote was not recorded, but a motion to recommit was defeated by a vote 
 
 of 151 to 19. 
 
 As indicating the general approval of the creation of a trade commission a refer- 
 endum vote of the United States Chamber of Commerce is significant. The local 
 commercial organizations constituting that body reported 522 votes in favor of the 
 establishment of the commission and only 124 as opposed. It is especially significant 
 that the only feature disapproved was the section (of the original Clayton-Newlands 
 draft) empowering the commission to report upon the legality of particular contracts 
 or combinations upon the application of the parties concerned. 
 
314 JOURNAL OF POLITICAL ECONOMY 
 
 The result was that the Stevens bill was commended to the serious 
 attention of the Senate Committee on Interstate Commerce/ It 
 does not appear, however, that there was any general expectation 
 that the legislative program of either the President or the committee 
 would be seriously altered. It was thought to be too late to intro- 
 duce new and highly debatable proposals into the Trade Commis- 
 sion bill. Moreover, the committee had had before it for some 
 time a bill introduced by Senator Clapp of Minnesota, himself a 
 member of the committee, which contained provisions with respect 
 to the control of unfair competition very similar to those of the 
 Stevens bill. But it became understood that the President favored 
 these new proposals, and on June 12 the committee agreed to 
 adopt the sections of the Stevens bill relating to unfair competitive 
 practices. On June 13 the completed draft, containing the trade 
 commission section"^ of the committee's proposed omnibus bill, 
 together with the new provisions taken from the Stevens bill and 
 one additional section providing for an immediate investigation of 
 practices in foreign trade, was reported to the Senate. 
 
 When, on June 25, the debate on the bill was opened in the 
 Senate, it became apparent that the control of imfair competition 
 was to be the principal bone of contention. It was urged by 
 opponents of the bill, including Democrats as well as RepubHcans, 
 that the power of court review was inadequate, and it was claimed 
 that the phrase "unfair competition" was too vague and uncertain 
 in meaning to afford a reasonable criterion either for the commission 
 or for business enterprises. And if given a rigid definition by the 
 commission, it was said, it might stand in the way of successful 
 
 ' This marks a change in the attitude of the administration. On January 26 
 President Wilson had stated to a group of senators and representatives his views of the 
 functions of a trade commission. It was, he said, to be "smelling around all the time 
 for rats"; its information should be at the disposal of all branches of the government, 
 but it should be charged with the duty of bringing violations of the law to the attention 
 of the Department of Justice; its findings were to be binding, the Attorney-General 
 retaining the power to determine whether there had been a violation of the law; the 
 commission was to assist the courts in the formulation of decrees. This, it will be 
 noted, was merely an analysis and a detailed approval of the provisions of the original 
 Clayton-Newlands biU. 
 
 " The proposed commission now appeared as the "Federal Trade Commission" — 
 a name which was substituted for "Interstate Trade Commission" in order to prevent 
 confusion with the Interstate Commerce Commission. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 315 
 
 prosecutions under the Sherman act, in cases where practices used 
 in achieving monopoly had not been called "unfair" by the com- 
 mission. 
 
 Although, in the light of subsequent developments, it seems 
 hkely that the bill would have passed the Senate at any time that 
 it could have been brought to the vote, the sponsors of the bill 
 either overestimated the strength of the opposition or were them- 
 selves somewhat apathetic as to the fate of the provisions which had 
 been taken over from the Stevens bill. As it was, some of the 
 opposition seems to have been prompted by the desire to postpone 
 action on the anti-trust bills till another session of Congress. Many 
 amendments of the section dealing with unfair competition were 
 offered, and at least four of these were submitted by individual 
 members of the Committee on Interstate Commerce. Amend- 
 ments offered by Senators Pomerene of Ohio, Holhs of New 
 Hampshire, and Saulsbury of Delaware, all tended distinctly to 
 lessen the powers of the commission. Senator Pomerene's pro- 
 posal went farther than the others in this direction, for it provided 
 that the findings of the commission should be subject to court 
 review, both as to facts and as to law, and that new evidence might 
 be brought into court if it were shown that it could not reasonably 
 have been introduced before the commission. 
 
 The majority members of the Committee on Interstate Com- 
 merce decided that nothing much stronger than the Pomerene 
 amendment would be accepted by the Senate, so Senators Pomerene 
 and Walsh were appointed to prepare a revision of the section in 
 question. The result (made pubHc on July 30) was a sHght modi- 
 fication of the original Pomerene draft, the principal difference 
 being that the revised draft made the findings of the commission 
 prima facie evidence in court proceedings, instead of leaving them 
 on a parity with new evidence. It was reported, moreover, that 
 the Democratic members of the Committee on Interstate Com- 
 merce were willing to cut the unfair-competition section out of 
 the bill, in order not to block the progress of the anti-trust 
 legislation. But, to their surprise, the Senate, on August i, 
 adopted Senator Cummins' relatively drastic substitute." This 
 
 ' The vote was 33 to 25. The division was not along party lines. 
 
3i6 JOURNAL OF POLITICAL ECONOMY 
 
 gave to the commission's findings substantially the same standing 
 in court that now obtains in the case of the findings of the Inter- 
 state Commerce Commission. 
 
 The chief stumbling-block out of the way, further progress was 
 easy. The bill had already received some minor amendments and 
 a few more were added. On August 5 the bill passed the Senate 
 by the vote of 53 to 16.' 
 
 The House refused to accept the Senate bill and a conference 
 committee was appointed. The committee found difficulty in 
 coming to an agreement, but there was less difference about the 
 general power over unfair competition which the Senate bill gave 
 the committee than over the matter of the judicial review of the 
 exercise of that power. Finally it was arranged that the findings 
 of the commission should be final as to matters of fact, the court 
 review being limited to points of law. The commission cases were 
 to go directly to the circuit courts of appeals instead of to the dis- 
 trict courts. This was for the purpose of saving time and of pre- 
 venting conflicting decisions. Appeals to the Supreme Court 
 could be made only on writ of certiorari. The conference com- 
 mittee changed the offense against which the commission is to pro- 
 ceed from "unfair competition " to " unfair methods of competition." 
 It also introduced a new provision, which permits the commission 
 to refuse to investigate alleged instances of unfair competitive 
 methods if it appears that no pubKc good would follow from such 
 proceeding. This saves the commission from having to follow up a 
 host of complaints of petty offenses and allows it to refuse to be 
 used as a means of annoying a complainant's competitors. With 
 respect to the commission's general powers of investigation the 
 conference committee adopted what were substantially the pro- 
 visions of the House bill. The conference draft was accepted by 
 the Senate on September 8 and by the House on September 10.^ 
 
 In the meanwhile the progress of the other anti-trust measures 
 had been even more halting. The tentative drafts of the Inter- 
 locking Directorates bill, the Definitions bill, and the Trade Rela- 
 tions bill remained in the hands of the House Committee on the 
 
 ' Twelve Republicans voted for the bill and 14 against it. 
 
 ' The vote was 43 to 5 in the Senate. There was no roll call in the House. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 317 
 
 Judiciary, which began its hearings on these measures on January 
 29. In the hearings as well as in outside comment the Definitions 
 and Trade Relations bills were severely criticized. 
 
 By the terms of the Trade Relations bill five sections were to 
 be added to the Sherman act. The first section prohibited dis- 
 criminations in price for the purpose of injuring or destroying 
 a competitor of either the buyer or the seller, but permitted dealers 
 "to select their own customers'" except for mine operators, who, 
 Hke those engaged in public callings, were to be compelled to sell 
 to all responsible persons who might apply. The second additional 
 section prohibited factors' agreements. Another section made 
 judgments for the government in suits under the act conclusive 
 evidence in personal suits. Individuals were permitted to sue for 
 injunctive relief against a threatened violation of the act, and it was 
 specified that the first two additional sections should not be held 
 to limit the meaning of the second section (condenming ' 'monopoliz- 
 ing") of the original act. 
 
 The Definitions bill specified certain things that should be 
 deemed to constitute "restraint of trade" or "monopolizing" under 
 the Sherman act. These included agreements entered into with a 
 purpose (i) to "carry out restrictions in trade" or acquire a 
 monopoly, (2) to Hmit production or to increase prices, and (3) to 
 prevent competition in making, selling, transporting, or purchasing 
 any commodity. These specifications would have added nothing 
 to the meaning of the Sherman act as interpreted by the courts. 
 But a fourth clause was so sweeping in its condemnation that it 
 must be quoted : 
 
 To make any agreement, enter into any arrangement, or arrive at any 
 understanding by which they, directly or indirectly, undertake to prevent a 
 free and unrestricted competition among themselves or among any purchasers 
 or consumers in the sale, production or transportation, of any production, or 
 transportation of any product, article, or commodity. ^ 
 
 It is hard to see how this clause could have been interpreted by 
 the courts, even if the "light of reason" were utilized, except as 
 preventing all agreements in restraint of trade, including those 
 
 ' Thus permitting a manufacturer or jobber to refuse to sell to consumers and 
 validating exclusive agency contracts. 
 
3i8 JOURNAL OF POLITICAL ECONOMY 
 
 reasonable and necessary agreements incident to the creation of a 
 partnership or the sale of the good will of a business. 
 )^ The Definitions bill made officers and directors personally Hable 
 for the violation of the act on the part of a corporation, and pro- 
 vided that it should not be held to limit or curtail the meaning or 
 effect of the Sherman act. It was planned to add a paragraph 
 relating to holding companies to the bill before it was introduced 
 in the House. 
 
 The objections brought against the Definitions bill were more 
 forceful than those directed against the Trade Relations bill. 
 Business men likely to be affected by it objected to its sweeping 
 condemnations, and many careful students of the Sherman act 
 feared that, despite the disclaimer in the bill, the effect of any 
 specific definitions of offenses under the act would be to render its 
 application less elastic, and to harden and ultimately to Hmit its 
 meaning. It was also suggested that it would take years to reach 
 a definite judicial interpretation of the meaning of the various 
 "definitions" in the bill. 
 
 The Interlocking Directorates bill, in its original form, pro- 
 hibited any officer or director of a corporation (or member of a 
 firm) engaged in producing or selling coal, structural steel, or other 
 railroad supplies, or in conducting a bank or trust company from 
 serving as an officer, director, or employee of a railroad or other 
 interstate corporation. It also made it illegal for anyone to serve 
 as officer, director, or employee of two or more banks if one was a 
 federal reserve bank or a member of a federal reserve bank, and thus 
 under federal jurisdiction. The presence of common directors in 
 two or more corporations engaged in interstate commerce was made 
 conclusive evidence of a combination in restraint of commerce 
 subject to the penalties of the Sherman act. 
 
 The objections brought against this bill referred to such matters 
 as the difficulty of making the necessary changes and adjustments 
 within the two years allowed, the scarcity of men properly quali- 
 fied for important directorships, the desirability of securing har- 
 monious business poHcies (especially in the case of railroads), the 
 encouragement that would be given to the election of "dummy 
 directors," the advantage that the presence of the names of well- 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 319 
 
 known financiers gives in obtaining credit abroad, and the legiti- 
 naacy of the representation of important financial interests on the 
 directorates of all corporations in which such interests have large 
 investments. In general, most of the critics held that the bill 
 condemned a mass of necessary and useful arrangements in order 
 to reach a few admittedly objectionable cases. 
 
 But, as in all similar cases, the logic of the specific criticism 
 brought against the bills was less important than the general 
 feeling with respect to the desirability of any legislation of the sort. 
 It was apparent from the beginning that the support accorded 
 these measures in Congress would be less cordial than that given to 
 the Trade Commission bill. By March i it was reported that there 
 was much disagreement in the House Committee on the Judiciary, 
 and that the ahgnment of the members varied on the different bills. 
 None of the measures, it was further reported, could command 
 a majority in the Senate Committee on Interstate Commerce. 
 This committee, as I have already said, decided to disregard these 
 original drafts and to attach to its Trade Commission bill some 
 sections covering part of the same ground. The Attorney- General, 
 moreover, let it be understood that he did not favor any attempts 
 at legislative definition of the general phrases of the Sherman act.' 
 Under these conditions the opponents of further anti-trust legis- 
 lation began to hope that Congress might content itself with estab- 
 Kshing a trade commission. 
 
 At this crisis the administration showed itself distinctly resource- 
 ful. Although the President had on several occasions conferred 
 with Representatives Clayton, Carlin, and Floyd, who were the 
 sponsors for the bills, it was now stated that the bills should not be 
 considered as having received his approval, and that they were 
 merely tentative drafts intended to cover some of the reforms 
 urged in the President's special message. Moreover, the President 
 saw that there was cogency in the arguments of those who wished 
 to have the Sherman act left intact, and he aimounced that he feared 
 that attempts at rigid defijiitions might weaken the act.= The 
 
 'Importance must also be attached to the similar attitude of Representative 
 Underwood, the majority leader in the House. 
 
 ' First announced, so far as I can find, after a conference with the Attorney- 
 General on February 18. 
 
320 JOURNAL OF POLITICAL ECONOMY 
 
 division of the proposed legislation into several bills was seen 
 to be a tactical error. These separate measures were better 
 targets for criticism than a single bill would have been, and at the 
 same time they afforded a poorer rallying-ground for those who 
 were willing to support the administration. 
 
 During March, Representatives Clayton, CarHn, and Floyd held 
 several conferences with the President, and it became understood 
 that the bills were to be rewritten so as to modify the language of 
 the Trade Relations bill and reduce the scope of the Definitions 
 and Interlocking Directorates bills. Finally, after a conference at 
 the White House on April 3, it was announced that the House Com- 
 mittee on the Judiciary would bring out an "omnibus anti- trust 
 bill," embracing revisions of the three bills already mentioned 
 together with the Holding Companies bill. This last had been 
 made pubKc on March 17, and was by no means a drastic measure. 
 
 But there was yet another difficulty to reckon with. This had 
 to do with the status of labor unions under the Sherman act. The 
 sundry civil service appropriation bill which was passed by Congress 
 in February, 1913, contained a provision forbidding the Department 
 of Justice to utihze any money appropriated for the enforcement of 
 the Sherman act in the prosecution of combinations of farmers or 
 working-men. For this reason President Taft vetoed the measure, 
 denouncing the exemption as vicious class legislation. When the 
 Democrats came into power the bill, with the exemption section, 
 was again passed. President Wilson approved the measure, but 
 submitted with his approval a memorandum condemning the 
 principle of the special exemption of certain classes from prose- 
 cution under the Sherman act. His approval, he said, would not 
 have been given if it had not been for the urgent need of the appro- 
 priations and for the fact that other funds could be drawn upon, 
 if need be, for the prosecution of the exempted combinations. 
 
 As soon as the preparation of the new anti-trust measures was 
 begun the representatives of the unions let it be known that they 
 intended to demand that their organizations, together with those 
 of the agriculturists, should be specifically exempted from the con- 
 demnations of the Sherman act and of any supplementary legis- 
 lation. President Wilson, had he so desired, could have supported 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 321 
 
 this demand without inconsistency. Frankly to Hmit the appKca- 
 tion of a statute against combinations in restraint in trade is a 
 more defensible thing than to achieve the same result by crippling 
 the administration of the statute while it is still couched in terms 
 which have been held by the courts to apply to the actions of 
 working-men as well as of capitaKsts. But the President did not 
 choose this course. A sop was first offered to the unions by in- 
 cluding in the draft of the proposed omnibus revision of the anti- 
 trust bills a number of sections limiting and guarding the use of 
 injunctions in labor disputes and providing for jury trials in con- 
 tempt proceedmgs.' This did not satisfy the labor interests. 
 Their views were embodied in the Bartlett-Bacon bill, one section 
 of which read as follows: 
 
 That it shall not be unlawful for persons employed or seeking employment 
 to enter into any arrangements, agreements, or combinations with a view of 
 lessening their hours of labor, or of increasing their wages, or of bettering their 
 condition; nor shall any arrangements, agreements, or combinations be 
 unlawful among persons engaged in horticulture or agriculture when made 
 with the view of enhancing the price of agricultural or horticultural products. 
 
 But the President and the framers of the anti-trust bills were 
 unwilling to grant a flat exemption. When the new Clayton 
 omnibus bill was made public, on April 14, it contained the following: 
 
 That nothing contained in the anti-trust laws shall be construed to forbid 
 the existence and operation of fraternal, labor, consumers', agricultural, or 
 horticultural organizations; orders or associations operating under the lodge 
 system,^ instituted for the purposes of mutual help, and not having capital 
 stock or conducted for profit, or to forbid or restrain individual members of 
 such orders from carrying out the legitimate objects of such associations. 
 
 This section was perfectly harmless and well-nigh meaningless. 
 It is reported that it was at first accepted as satisfactory by some 
 of the labor leaders, but a vigorous and effective campaign to 
 
 ' These provisions were taken over from the Clayton Injunction bill and the 
 Clayton Contempt bill which had been favorably acted upon by the House at the 
 previous session of Congress. They were interpreted as a fulfilment of pledges made 
 in the Baltimore platform and would undoubtedly have been brought up for separate 
 consideration if they had not been joined to the Anti-trust bill. As these sections have 
 only an incidental bearing upon anti-trust legislation there will be no detailed considera- 
 tion of them in this paper. 
 
 2 When the bill was reported to the House by the committee the words "operating 
 under the lodge system" had been stricken out. 
 
322 JOURNAL OF POLITICAL ECONOMY 
 
 secure more definite exemption soon developed. What was really 
 wanted, there can be small doubt, was the legalizing of the 
 secondary boycott. But it was then thought hopeless to expect 
 Congress to grant this in any direct form, and hence the efforts of 
 the labor leaders were bent toward securing a general clause which 
 might be construed by the courts so as to secure the desired end. 
 It was openly said that the labor vote would be used against mem- 
 bers of Congress who would not support a strongly worded exemp- 
 tion section, and the administration was threatened with the defeat 
 of the whole budget of anti-trust legislation. 
 
 At a conference between President Wilson and the ranking 
 Democratic members of the House Committee on the Judiciary 
 on May i6 it was agreed, if we may trust the reports, that the 
 labor section as it stood went far enough. On May 19 Mr. Frank 
 Morrison and Mr. Jackson M. Ralston, secretary and attorney, 
 respectively, of the American Federation of Labor, together with 
 Representative Lewis of Maryland, leader of the labor forces in the 
 House, appeared before the House Committee on the Judiciary, but 
 their demands were not granted. Finally, on May 24, fifteen labor 
 members of the House conferred with the Democratic members of 
 the Committee on the Judiciary, and two days later there was a 
 similar conference at the White House. A compromise was agreed 
 to, which consisted in amending the section in dispute by adding 
 the words: "Nor shall such organizations, orders, or associations 
 or the members thereof be construed or held to be illegal combina- 
 tions in restraint of trade under the anti-trust laws." On June i 
 this amendment was adopted by the House without a dissenting 
 vote.' 
 
 Other aspects of the Clayton omnibus bill remain to be con- 
 sidered. It was introduced in the House on April 14 and referred 
 to the Committee on the Judiciary. With minor changes it was 
 favorably reported to the House on May 6. It contained, as we 
 
 I As the vote was not recorded there was an amusing scramble to get into the 
 Record. A number of short statements of approval were made. For an account 
 of the earlier history of the attempts of organized labor to secure this kind of 
 legislation see Philip G. Wright, "The Contest in Congress between Organized 
 Labor and Organized Business," Quarterly Journal of Economics, XXIX (February, 
 1915), 23S- 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 323 
 
 have seen, new sections relating to injunctions and contempt pro- 
 ceedings as well as the exemption clause. The Definitions bill had 
 been discarded and formed no part of the new measure. The 
 Trade Relations bill had been thoroughly remodeled in phraseology 
 and changed in other particulars. The section prohibiting factors' 
 agreements was made to include tying contracts. These offenses, 
 as well as \mf air price discriminations, were no longer merely defined 
 as attempts to monopoHze trade or commerce, but were made 
 specific misdemeanors, with specific penalties attached. The 
 provisions of the Interlocking Directorate bill were distinctly 
 softened. The prohibition of interlocking directorates between 
 common carriers and banks was Umited to cases in which the bank 
 underwrites or purchases the carrier's securities. Two or more 
 banks might have directors in common if no one of the banks had 
 liabiHties of more than $250,000.00 and if no two of the banks 
 were located in a city with more than 100,000 inhabitants. Mutual 
 savings banks not having a share capitalization were exempted, 
 wherever located. Interlocking directorates in the cases of natur- 
 ally competitive corporations, other than common carriers, engaged 
 in interstate commerce were made definitely punishable instead 
 of being held to constitute conclusive evidence of violation of the 
 Sherman act. The sections prohibiting holding companies were 
 to apply only to cases where the effect is to "eliminate or lessen 
 competition" among the corporations. It will be seen that as 
 compared with the original bills, the anti-trust sections of the new 
 Clayton bill were distinctly moderate. 
 
 The bill was not brought to a vote imtil June 5, and although 
 the House had shown itself to be distinctly apathetic with respect 
 to the measure, it was passed by a vote of 275 to 54.' A few amend- 
 ments were made by the House. The owners and operators of oil 
 or gas wells, reduction works, refineries, and hydro-electric plants 
 were, Hke mine-owners, forbidden to refuse to sell their products 
 to responsible appHcants. Another amendment provided that anti- 
 trust suits might be brought in any district where a corporation 
 "resides or is found or has an agent." More important than these 
 
 ' The vote on this measure was not so distinctly bipartisan as that on the Coving- 
 ton bill. Only one Democrat voted against it. 
 
324 JOURNAL OF POLITICAL ECONOMY 
 
 was a new clause legalizing trafiSc associations and other organiza- 
 tions of railroad oflScials." 
 
 The Senate referred the bill to the Committee on the Judiciary. 
 The committee proceeded at once to strike out the amendment 
 legalizing railroad organizations and the entire clause compelHng 
 mine-owners and others to sell to all responsible persons. Then it 
 ehminated a clause providing that no person other than the United 
 States should have the right to sue common carriers for injunctive 
 relief from damages resulting from a violation of the Sherman act. 
 The House bill had provided penalties for the violation of the 
 sections dealing with price discriminations, tying contracts, and 
 interlocking directorates. The committee substituted declarations 
 of the illegaHty of these things and put the enforcement of the 
 section into the hands of the proposed trade commission and the 
 Interstate Commerce Commission.^ 
 
 The amended bill was reported to the Senate on July 22. There 
 the sections forbidding price discriminations and tying contracts 
 were stricken out on the ground that these offenses were to be 
 covered by the general power of the trade commission over unfair 
 methods of competition.^ On the last day of the debates in the 
 Senate two further amendments were made. A new section was 
 adopted making it unlawful for an interstate corporation to do busi- 
 ness in any state in ways contrary to the laws of that state or of the 
 state in which the corporation was chartered. And at the instance 
 of Senator Cummins the declaration, "The labor of a human being 
 is not a commodity or article of commerce," was added to the 
 section legaUzing labor combinations.'' The bill, thus amended, 
 passed the Senate on September 2 by a vote of 46 to 16. 
 
 • This was intended as an offset to the labor combination exemption. If retained 
 in the bill it would probably have been ineffective, for it did not legalize agreements to 
 "maintain rates." It had, however, the approval of the Interstate Commerce 
 Commission. 
 
 ' Record should be made of a curious amendment proposed by Senator Shields of 
 Tennessee, which amounted to the declaration that acts in violation of the anti-trust 
 statutes are unlawfiU and are prohibited. 
 
 3 The section on tying contracts was later restored, then again stricken out, and 
 finally put back in an amended form. 
 
 * The injunction sections of the House bill contained provisions legalizing picket- 
 ing. These were stricken out by the Senate Committee on the Judiciary, but the 
 Senate adopted a substitute, offered by Senator Cummins, which legalized both picket- 
 ing and boycotting. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 325 
 
 The conference committee had a difficult task, for the Senate 
 changes were considerable and their net effect was to make the 
 bill much less drastic. It was finally agreed, however, to restore 
 the section forbidding price discriminations, but with the penal 
 clause eliminated. The section in the House biU had condemned 
 price discriminations made with intent "to injure the business" of 
 a competitor of either seller or buyer, while the conference report 
 made them illegal only when the effect may be to "substantially 
 lessen competition or to create a monopoly." There was much 
 difficulty over the matters of tying contracts, and of interlocking 
 directorates, but the conference committee was able to come to a 
 final agreement on September 23. 
 
 When the conference report was returned to the Senate opposi- 
 tion developed which at times threatened to take on the character 
 of a filibuster. The thing chiefly attacked was that elimination 
 of penal provisions for which the Senate itself was responsible. 
 Senators who had not previously been known as hostile to large 
 business interests joined with the representatives of non-radical 
 opinion in condemning the alleged emasculation of the bill. Senator 
 Reed of Missouri, who had previously made a number of unsuc- 
 cessful attempts to secure the adoption of a radical amendment 
 providing for receivers' sales of the property of combinations 
 condemned under the Sherman act, was the principal opponent of 
 this "capitulation to the trusts." Some of the opposition was, of 
 course, based on the conviction that the proposed statute was 
 inadequate to its purpose. But much of it represented a last 
 attempt to delay action on the bill long enough to force an adjourn- 
 ment of Congress. The debate in the Senate dragged on until 
 October 5, when the conference report was accepted by a vote of 
 35 to 24 after Senator Reed's motion to return the bill to conference 
 with instruction to insist upon the penal clauses had been defeated 
 by a very similar vote.' The debate in the House was along 
 similar lines, but was much less prolonged. Yet the House did not 
 vote upon the conference report until October 8, when it was 
 approved by a vote of 244 to 54. 
 
 I Six Democrats voted for the motion to recommit, but only three voted against 
 accepting the conference draft. 
 
326 JOURNAL OF POLITICAL ECONOMY 
 
 The Clayton act was thus the outcome of about eight months 
 of dehberation. But in less degree even than is true of most impor- 
 tant federal statutes, and in a markedly less degree than is true of 
 the estabHshment of a trade commission, did it represent a real focus 
 of the opinion of a majority of the members of Congress. Despite 
 the large majority recorded in its favor the general attitude of 
 Congress was that of unwillingly doing a set task. For many 
 members of Congress the casting of a favorable vote was a matter 
 of political exigency. Administrative pressure, party discipline, 
 the poHtical power of organized labor, and the undoubted fact 
 that a majority of the voters at home would interpret a Con- 
 gressman's vote against an "anti-trust" statute as a vote for 
 monopoly were the dominant factors in the situation. And so 
 many things were lumped together in the bill that it was im- 
 possible to segregate the good from the bad. The enaction of 
 additional anti-trust legislation was in itself a praiseworthy carrying 
 out of a party pledge. The particular shape which that legislation 
 took is a matter in which the general views of the President, the 
 pressure of interests strong enough, politically, to command a 
 hearing, and the ideas of the few men actively interested, in 
 Congress and out of it, who had definitely crystallized opinions 
 as to what anti-trust legislation should be, each played a part. 
 
 Allyn a. Young 
 
 Cornell University 
 
THE JOURNAL 
 
 OF 
 
 POLITICAL ECONOMY 
 
 Volume 23 May igi^ Number 5 
 
 THE SHERMAN ACT AND THE NEW ANTI-TRUST 
 LEGISLATION. Ill 
 
 In this concluding paper I shall try to weigh the importance of 
 the new legislation and to suggest some of its possible consequences. 
 The topics which I shall consider are (i) the exemption of labor 
 combinations, (2) the limitations put upon the use of holding com- 
 panies, (3) the prohibition of interlocking directorates, (4) the con- 
 demnation of certain trade practices, (5) the power of the Federal 
 Trade Commission over unfair methods of competition, and (6) the 
 general powers and functions of the Commission. 
 
 The sixth section of the Clayton act, exempting labor combina- 
 tions from the condemnation of the anti-trust laws, is as follows: 
 
 The labor of a human being is not a commodity or article of commerce. 
 Nothing contained in the anti-trust laws shall be construed to forbid the 
 existence and operation of labor, agricultural, or horticultural organizations, 
 instituted for the purposes of mutual help, and not having capital stock or 
 conducted for profit, or to forbid or restrain individual members of such organi- 
 zations from lawfully carrying out the legitimate objects thereof; nor shall 
 such organizations, or the members thereof, be held or construed to be illegal 
 combinations or conspiracies in restraint of trade, under the anti-trust laws. 
 
 The interpretation of this section may seem to be somewhat 
 complicated by the inclusion of "agricultural or horticultural 
 organizations." This is to be attributed, of course, to the desire 
 of the labor leaders to secure for this section the support of 
 
 417 
 
4i8 JOURNAL OF POLITICAL ECONOMY 
 
 the senators and representatives from agricultural states. Agricul- 
 tural organizations themselves were not actively engaged in lob- 
 bying for the enactment of these provisions. Most agricultural 
 co-operative associations are conducted for profit and so are not spe- 
 cifically exempted by this section. Few, if any, of these, however, 
 fall under the condemnation of the anti-trust laws. Agreements 
 to maintain prices or to restrict output are not common among 
 agriculturists. Attempts to come to such agreements, such as have 
 been made by cotton- and tobacco-growers, have always been 
 
 • ineffective. I do not think that the exemption of agricultural 
 organizations has any real importance, and there is no reason to 
 suppose that it was intended to have importance. 
 
 The labor leaders who were active in the campaign for exemption 
 professed to be satisfied with the section as it stands. But the 
 opposition to it would undoubtedly have been firmer than it was 
 if there had not been a belief on the part of many that it effected 
 no substantial change in the existing status of labor organizations 
 under the Sherman act. When the essential features of the present 
 section were first decided upon. President Wilson stated in an inter- 
 view that it did not exempt labor organizations from the operation 
 of the Sherman law. Similar statements were frequently made in 
 the congressional debates and as frequently challenged. For a 
 final settlement of the question we must wait, of course, for court 
 decisions, but some points seem even now to stand out rather 
 clearly. 
 
 '"^ The declaration, "The labor of a human being is not a com- 
 modity or article of commerce,"' is little more than an empty 
 blague, and the permission given to individual members of labor 
 organizations to "lawfully carry out the legitimate objects thereof" 
 is at once harmless and unavailing. If there is any effectiveness 
 in the section it is in the clause, "nor shall such organizations, or 
 the members thereof, be held or construed to be illegal combinations 
 or conspiracies in restraint of trade, under the anti-trust laws." 
 
 ' The suits brought against labor unions under the Sherman act have not charged 
 them with monopolizing " labor." It is an amusing circumstance that the first appeal 
 to the protection of this clause should have been made by an employers' combination — 
 the so-called "baseball trust." 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 419 
 
 Now no action has ever been brought for the dissolution of a labor 
 union under the Sherman act. But Mr. Gompers, testifying before 
 the House Committee on the Judiciary, said that labor combina- 
 tions exist only by the tolerance of the Attorney-General. If Mr. 
 Gompers' interpretation of the Sherman act is correct, if that 
 statute condemns unions merely because they are combinations for 
 collective bargaining, then it must be admitted that their specific 
 exemption in this section is a matter of some importance. But 
 
 there are reasons for thinking Mr. Gompers mistakenT? 
 
 /__ : ' In the first place, there is enough difference between the sort of 
 "monopoly" which a labor union seeks to estabhsh and such 
 monopoHstic industrial combinations as are clearly condemned by 
 the Sherman act to make it uiicertain whether the courts would 
 put them in the same category.] One is in principle an inclusive, 
 the other an exclusive, monopoly. It is true that railroad mergers, 
 such as were condemned in the Northern Securities and Union 
 Pacific cases, are in some respects "inclusive" combinations. But 
 the St. Louis Terminal Railroad case is a more instructive prece- 
 dent.' The railroad in question has a virtual monopoly of terminal 
 facilities in St. Louis. A suit for dissolution was brought against it 
 under the Sherman act. The Supreme Court did not grant a dis- 
 solution order, but merely directed the company so to reconstruct 
 its organization as to provide that new companies might participate 
 in its ownership and be given the advantages of its services on equal 
 terms with the railroads then in control of it. The parallel is not 
 perfect, for the Terminal Railroad of St. Louis is a natural monop- 
 oly. But the case suggests that if similar suits had been brought 
 against labor combinations the outcome might have been that the 
 court would merely have insisted that admission tojjnion member- 
 ship must be granted to all applicants on fair terms^^' 
 / In the second place, it is doubtful even whether the courts 
 would have deemed themselves authorized by the Sherman act to 
 interfere in any degree either with the conditions of admission to 
 union membership or with the ordinary trade agreements which 
 unions attempt to enforce. For agreements among working-men 
 to fix wages or hours or conditions of employment have only an 
 ' 224 U.S. 383. 
 
420 JOURNAL OF POLITICAL ECONOMY 
 
 indirect and incidental effect upon interstate trade or commerce, 
 while the courts have consistently held that the Sherman act 
 covers only agreements which have a direct and primary effect 
 upon such trade or commerce J 
 
 nin the third place, there is a yet more important consideration j^ 
 which I have pointed out in the first paper of this series.' \The 
 Sherman act has been brought to bear upon working-men, not 
 because labor unions are in themselves labor monopolies, and as 
 such are in restraint of compietition, but merely because strikes and 
 boycotts have the effect of interfering in some degree with the free 
 flow of goods from one state to another. This is, of course, what 
 the labor interests wanted changed. It is not clear, however, that 
 this section alters the law in this resp_ectjj I cannot imagine that 
 the courts will hold that the provision that neither labor organiza- 
 tions nor their members shall be "held or construed to be combina- 
 tions or conspiracies in restraint of trade" covers cases of this kind. 
 If it does, a doubt as to the constitutionaHty of the section at once 
 arises. It is true that the Supreme Court has recently held that 
 a Missouri anti-trust statute is not in violation of the federal Con- 
 stitution, despite the fact that the statute specifically exempts 
 labor combinations.^ But with respect to the matter in hand the 
 question would be whether an exemption of such interference with 
 the "free flow of commerce" as comes from the activities of labor 
 combinations would not amount to a denial of "due process of 
 law" to the members of such other combinations as are condemned 
 for similarly interfering with commerce.^ I It is not a question of 
 the legality of the restraint of competition among working-men. 
 The question is whether labor combinations may restrain interstate 
 commerce in goods while such restraint is not permitted to other 
 combinations. It may be that the whole line of cases in which 
 restraint of the free movement of goods from one state to another 
 has been condemned is based upon a twisted interpretatioii of the 
 meaning of the Sherman act. But until that statute is so amended 
 as to apply merely to restraint of competition as distinguished from 
 
 ' Journal of Political Economy, XXIII (March, 1915), 210-13. 
 ' International Harvester Co. v. Missouri, 234 U.S. 199. 
 3 Cf. L. P. McGehee, Due Process of Law, pp. 60-64. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 421 
 
 interference with commerce there seems little chance that the 
 exemption section of the Clayton act can alter in any important 
 degree the present position of labor unions under the Sherman actj 
 There is, however, another provision in the Clayton act which 
 may give labor combinations virtual immunity from the operations 
 of the Sherman act. This section (the twentieth) prohibits the 
 granting of injunctions by federal courts in labor disputes "unless 
 necessary to prevent irreparable injury to property or to a property 
 right," and specifies that such injunctions shall not prohibit strik- 
 ing, picketing, or boycotting. This in itself does not prohibit civil 
 suits for damages or criminal prosecutions under the Sherman act. 
 Probably it does not prohibit the granting of injunctions on the 
 petition of the government, for the general provisions of the section 
 apply only to cases "between employers and employees." But, so 
 far as the delimitation of the scope of the Sherman act is concerned, 
 such considerations as these become unimportant in view of the 
 fact that the section concludes with the sweeping statement, "nor 
 shall any of the acts specified in this paragraph be considered or 
 held to be violations of any law of the United States." This is the 
 real exemption section. Its constitutionaUty is a matter about 
 which there is some doubt, but its unconstitutionality is by no means 
 assured. If the courts sustain it, labor unions will have been 
 effectively freed from the restraints of the Sherman act.' 
 
 [^^^ The wisdom of the general policy of definitely legalizing strikes ^ 
 
 and boycotts is a matter which falls outside the province of the 
 present discussion. That as one aspect of this legalization strikes 
 and boycotts can no longer be reached by the Sherman act is, so far 
 as it goes, a fortunate result. But, as I have already tried to show, 
 it would have been better to give consistency and unity of meaning 
 to the Sherman act by making it definitely a statute against 
 monopolizing. "Interference with the movement of commerce," 
 whether on the part of labor unions or others, is a thiag apart from 
 the controlHng purpose of the statute. It is a pity that this desir- 
 able restriction in the scope of the statute should have been brought 
 
 ' It will still be possible for the courts to restrain interference with interstate 
 commerce by invoking general federal powers, as was done in the Debs case (158 U.S. 
 564). But this is not likely to be done except where the interference with commerce 
 is of such a character or magnitude as to be a matter of general public concern. 
 
422 JOURNAL OF POLITICAL ECONOMY 
 
 about only indirectly and partially, and by means of the legalization 
 of certain specific things which had been held to interfere with the 
 movement of commerce. If "restraint of commerce," as a thing 
 distinct from "restraint of trade" or "monopolizing," had been 
 stricken out of the Hst of offenses condemned by the Sherman act, 
 all of the restriction in the scope of the act which labor interests 
 could have desired would have been accomplished without the 
 appearance of unfair discrimination in their favor, without the sus- 
 picion of unconstitutionality, and, it may be added, without pre- 
 venting the courts from restraining any direct physical interference 
 with the actual movement of commerce, -i 
 
 |:r_ .The Clayton act prohibits the acquisition by one corporation of 
 any part of the capital stock of another corporation where the effect 
 may be "to substantially lessen competition" between such cor- 
 porations, to "restrain commerce," or "to tend to create a monop- 
 oly." This provision is useless, although in individual cases it may 
 prove to be mischievous. Ever since the Northern Securities 
 decision, in 1904, it has been clear that the organization of holding 
 companies for the purpose of eliminating competition or the acquisi- 
 tion by one corporation of stock in other corporations with the same 
 end in view is illegal under the Sherman act. The new statute adds 
 nothing to the existing law except that it prohibits such acquisitions 
 of stock in every case in which the effect may be to lessen competi- 
 tion between the corporations directly concerned, even though 
 general competitive conditions may continue to exist in the industry 
 in which such corporations are engaged. Since the new law does 
 not represent an attempt to get rid of the holding company as a 
 general form of business organization, the absolute condemnation 
 of the use of this device to effect the union of two or more compet- 
 ing enterprises is illogical. This is a new and, as it seems to me, 
 unwarranted departure from the general principles of the common 
 law in regard to "reasonable restraints of trade." Very likely little 
 use will be made of this provision. But there is a chance that it 
 may interfere with business arrangements which would be in no 
 respect at variance with the general spirit and purpose of the anti- 
 trust legislation^ 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 423 
 
 »— -=r-Aside from the suppression of competition there are a host of 
 evils coimected with intercorporate stockholding which are not 
 touched by the new law. The unfair treatment of minority stock- 
 holders, the general confusion in the adjustment of stockholders' 
 and bondholders' equities, the opportunities for various fraudulent 
 practices, and the artificial concentration of financial power, are 
 some of these evils. Frequently these things are found at their 
 worst in the relations between railroad companies and their sub- 
 sidiaries, and here the Clayton act specifically permits intercorporate 
 stockholdings. But such matters are outside the proper field of 
 "anti-trust" legislation. Holding companies will be necessary so 
 long as states refuse to give certain necessary rights, such as that 
 of holding real property or of constructing a railroad, to corporations 
 not of their own making. Their adequate regulation must wait 
 upon the enaction of a federal incorporation lav^J' 
 
 " /Li The provisions relating to interlocking directorates reach a 
 larger variety of offenses than those relating to holding companies. 
 In fact, at this point the Clayton act must be regarded as supple- 
 mentary to the Federal Reserve and Interstate Commerce acts as 
 well as to the Sherman act. 
 ^. The provisions relating to banks apply only to banks and trust 
 companies "operating under the laws of the United States," or, in 
 other words, to federal reserve banks and their member banks. No 
 such bank or trust company can have a director who is a private 
 banker or a director of a state bank or trust company with aggre- 
 gate liabihties, in the form of capital, surplus, undivided profits, 
 and deposits, amounting to more than $5,000,000. Nor can any 
 bank in the federal system with aggregate liabilities of the kind 
 specified of more than $5,000,000 have ofl&cers, directors, or em- 
 ployees who hold similar positions in any other bank in the federal 
 system. Finally, banks in the federal system, large or small, 
 located in cities of more than 200,000 population may not have 
 directors, officers, or employees who are private bankers in the same 
 city or who hold positions in other local banks.' « 
 
 ' Exceptions are made in tiie following cases: (i) Mutual savings banks having 
 no capital stock are not affected. (2) There may be interlocking directors or officials 
 in the case of two (but not more) banks if all the stock of one is owned by stockholders 
 of the other. (3) Class A directors of federal reserve banks (elected banker directors) 
 may be officers or directors of member banks. 
 
424 JOURNAL OF POLITICAL ECONOMY 
 
 [__ These new provisions were not enacted, it is safe to say, because 
 of any real belief that there is a tendency to monopoly in the supply 
 of ordinary commercial loans and discounts. The thing attacked 
 was undoubtedly the alleged concentration of control over such 
 banking resources as are utilized in aiding the larger financial opera- 
 tions of great corporations. That such control exists is not to be 
 doubted, and it cannot be held that it has always been wisely used. 
 But interlocking directorates among banks have in general little to 
 do with this situation, and where they are related to it they are at 
 most a sjonptom, a convenient mode of effecting co-operation, 
 rather than a basic factor. A general governmental supervision of 
 bankers' syndicates would Jje more effective than this prohibition 
 of interlocking directorates.-' 
 
 A very common arrangement which will be affected by the new 
 restrictions is the interlocking of the directors of two or more banks 
 in the same city which afford different sorts of banking facilities and 
 are hence complementary rather than competitive. Such alliances 
 between national banks and trust companies are common. The 
 directors who are on the boards of both banks are usually profes- 
 sional bankers or men who have substantial blocks of stock in each 
 bank. There is much to be said for such alliances, and it is hard 
 to see what is to be gamed by puttmg difficulties in their wayi But 
 to discuss the probable effect of these provisions upon the general 
 banking situation in any adequate fashion would lead us far afield. 
 
 Another provision affects common carriers and corporations or 
 firms having deaUngs with them in securities or supplies or con- 
 tracting with them for construction or maintenance. If any director 
 of the carrier, or its president, manager, or agent in the transac- 
 tion, is a director, manager, or agent of the other concern or has a 
 "substantial interest in it," such dealings may not amount to more 
 than $50,000 in any one year except as the result of competitive 
 bidding under the supervision of the Interstate Commerce Com- 
 mission. It is strange that so important a provision as this should 
 be hmited in its application to cases where officers or directors of 
 the carrier are directly interested in the other corporation or firm. 
 There is no obvious reason why all large transactions of the kind on 
 the part of common carriers should not be subject to competitive 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 425 
 
 bidding. In its present form the provision leaves the door open for 
 various methods of evasion, although its general efifect probably 
 will be wholesome. 
 
 I ,The most important change it may be expected to bring about 
 
 is in the marketing of railroad securities. The presence of influen- 
 tial bankers on the directorates of American railroads has un- 
 doubtedly often helped the railroads to place their securities and 
 to secure credit on advantageous terms. But on the other hand 
 the banker-directors have often been able to secure substantial 
 shares of the gains arising from various maneuvers in the field of 
 railroad capitahzation, and it is possible that, as a class, they have 
 been more than adequately paid for their services. At any rate, 
 it is highly undesirable that railroads should be managed with an 
 eye to the security market rather than to traffic and earnings. In 
 this particular, at least, the net effect of the new regulation should 
 be good. So also should be the effect of the provision which makes 
 the abuse of trust on the part of officers or directors of cojimion 
 carriers a felony under the jurisdiction of the federal courts^ 
 
 L All of the foregoing provisions relating to interlocking directo- 
 rates primarily affect banks or common carriers. But it is further 
 provided that no person may be a director of two or more indus- 
 trial corporations engaged in interstate commerce if one of them 
 has aggregate proprietorship liabilities' amounting to more than 
 $1,000,000 and if they are, "by virtue of their business and location 
 of operation, competitors, so that the eHmination of competition by 
 agreement between them would constitute a violation of any of the 
 provisions of any of the anti-trust laws." This is another carelessly 
 worded provision. Except for the provision of the Clayton act 
 itself, which, by similarly careless wording, prohibits one corporation 
 from acquiring the stock of any competing corporation, there is 
 nothing in the anti-trust laws which forbids the elimination of com- 
 petition between two or more competitors unless either a monopoly 
 results or the agreement is part of a general scheme to create a 
 monopoly. And so far as this new section applies to situations 
 
 ' The statute reads, "capital, surplus, and undivided profits" — a form borrowed 
 from the ordinary bank statement, but inaccurate and confusing when applied to 
 industrial corporations. 
 
426 JOURNAL OF POLITICAL ECONOMY 
 
 where interlocking directorates might, in fact, be a means of effect- 
 ively suppressing competition, it adds nothing to the Sherman act. 
 Combinations effected with a view to monopoly, whatever the 
 mechanism used as the means of combination, are unquestionably 
 illegal under present interpretations of the Sherman act. If nar- 
 rowly interpreted the new provision may prevent a large stock- 
 holder in two shoe factories, for example, from being a director of 
 more than one of them. Aside from its possible interference with 
 harmless arrangements of this sort, it seems to be useless.'^' 
 
 The partial prohibition of interlocking directorates, like the 
 similar prohibition of intercorporate stockholdings, is patchwork 
 legislation. Among the various methods by which harmonious 
 adjustments in corporation policies, for good or for evil, have been 
 secured, these two (often foimd together) have in recent years 
 become conspicuous. But so far as the suppression of competition 
 is the thing at which the new legislation is aimed, it seems illogical 
 to single out these devices for condemnation and leave such things 
 as intercorporate leases and intercorporate sales of property in fee 
 untouched. And, as we have seen, the use of these and other 
 devices for the purpose of monopolizing is already prohibited by the 
 Sherman act. Some confusion between the relation of these devices 
 to admitted evils in corporation finance and their bearing upon the 
 trust situation may have been a factor in determining the attitude 
 of Congress. American corporation law needs thoroughgoing 
 
 ' The provisions for the enforcement of the foregoing sections of the Clayton act 
 are as follows : Violations of the section requiring competitive bidding under specified 
 conditions are punishable by a fine of not over $25,000 imposed upon the offending 
 carrier, while in addition responsible officials and directors are punishable by a fine of 
 not more than $5,000, or by a year's maximum imprisonment, or both. Prosecutions 
 are by the Attorney-General upon the information of the Interstate Commerce Com- 
 mission. The enforcement of the other provisions relating to interlocking directorates 
 as well as those relating to holding companies is by means of orders of the Interstate 
 Commerce Commission, the Federal Reserve Board, or the Federal Trade Commission, 
 according as the offending corporation is a common carrier, a bank, or an industrial 
 or trading corporation. Orders are issued only after hearings. To secure compliance 
 with its orders the Commission or Board is to apply to the circuit court of appeals, to 
 which appeals may also be taken by the party against whom the order of the Com- 
 mission is directed. In either case the findings of the Commission, "if supported by 
 evidence," are final as to the facts. Appeal to the Supreme Court can be taken only 
 upon certiorari. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 427 
 
 revision, and the general status of the holding company and the 
 qualifications of directors are among the things most in need of 
 mending. But into this field of the internal relations of the corpora- 
 tion the new legislation does not go. And, so far as the provisions 
 we have been discussing are concerned, its contribution to the 
 arsenal of weapons against the suppression of competition is small. 
 
 Tjrhe trade practices condemned by the Clayton act are (i) dis- 
 crimination in the prices charged to different purchasers, and 
 (2) tying contracts and factors' agreements. The prohibition of 
 price discrimination leaves room for reducing prices on account of 
 the quantity sold or a lower "cost of selhng or transportation," 
 and for "discrimination in price in the same or different communi- 
 ties made in good faith to meet competition." This last exception 
 promises to create difficulties. The prohibition of price discrimina- 
 tions is undoubtedly aimed particularly at the practice of local 
 price-cutting on the part of large combinations for the purpose of 
 crushing local competition. It will be hard to draw the line between 
 price-cutting to "meet competition" and price-cutting to suppress 
 competition. And yet the exception is necessary. Without it 
 those manufacturers and jobbers who can get their products to a 
 given market with minimum transportation and selling costs would 
 have an undue advantage in that market over their competitors.' 
 The tendency would be to hamper competition rather than to foster 
 it. The control of price discriminations in competitive trade is at 
 once more difficult and more dangerous than in the field of the 
 natural monopoKes. ' 
 
 The prohibition of tying contracts and factors' agreements 
 covers leases and sales of goods (patented or unpatented) made with 
 the understanding that the lessee or purchaser shall not use or deal 
 in the goods of a competitor of the lessor or seller, as well as special 
 discounts or rebates made upon such conditions. But both this 
 
 ' This would in turn lead to attempts on the part of railroads to readjust their 
 rates so as to remove the handicaps put upon their own shippers. Given a system of 
 railroad rates based upon transportation costs, the rigid prohibition of all price dis- 
 criminations would in the long run be economically advantageous. But with railroad 
 rates based on "charging what the traffic will bear" the economy of such regulation 
 would be small. And it would be disastrous to introduce it suddenly. 
 
428 JOURNAL OF POLITICAL ECONOMY 
 
 prohibition and that of price discriminations apply only to cases 
 where the effect of the prohibited arrangement may be to "sub- 
 stantially lessen competition or tend to create a monopoly in any 
 line of commerce." In fact, these sections prohibit nothing that 
 is not already condemned by the Sherman act.' And although the 
 new provisions are to be enforced through orders of the Federal 
 Trade Commission, issued after hearings, the CommissioQ has to 
 apply to the courts for decrees making its orders effecti^^jl The 
 general question of what sorts of arrangements may be held to lessen 
 competition or to tend to create monopoly will be determined by 
 the courts. ' But with the establishment of working precedents it 
 may be expected that the Commission's proceedings will be promp- 
 ter, simpler, and possibly more efficacious in other respects than the 
 judicial proceedings under the Sherman act. In some cases, more- 
 over, it may be possible to put a stop to attempts to suppress com- 
 petition before a sufficient degree of monopoly has been achieved 
 to make it feasible to invoke the Sherman act. Nevertheless, I 
 do not believe the net effect will be notably different from what it 
 would have been if the Sherman act had remained the only statute 
 reaching these practices. 
 
 There has been a substantial body of well-informed opinion to 
 the effect that the prohibition of specific unfair practices, especially 
 the local price-cut and the factors' agreement, would be an effective 
 supplement to the Sherman act. But this body of opinion took 
 shape before the Supreme Court had indicated, as it did first in the 
 Standard Oil case, that it would consider the use of such devices as 
 prima facie evidence of an intent to violate the law against monopo- 
 lizing, and before it had begun to include iiyjjnctions against the 
 continuance of such practices in its decrees. [Much of jtS^bpinion, 
 moreover, took the form of a behef that a statute making these 
 unfair practices criminal would prove more efficacious than the 
 criminal provisions of the Sherman act. But the Clayton act does 
 not attach criminal penalties to the violation of its prohibition of 
 
 ' Except possibly, tying contracts relating to the use of supplies or other auxilia- 
 ries in connection with a patented article. 
 
 ' The procedure for enforcement is the same as in the case of the provisions relating 
 to holding companies and interlocking directorates. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 429 
 
 these practices. In short, it adds nothing to the substantive law 
 on the matter. It merely provides^a new procedure, and this may- 
 prove to have some advantages, -w 
 
 /' 
 
 f ' This brings us to a provision which may come to be of far- 
 reaching importance. The Federal Trade Commission act em- 
 powers the Commission to issue orders restraining individuals, 
 firms, and corporations (except banks and common carriers) from 
 using "unfair methods of competition in commerce." These orders 
 are to be issued only after hearings, and are enforceable only 
 through decrees of circuit courts of appeals, and are subject to 
 appeal in precisely the same manner a? thfi-orders issued under the 
 various provisions of the Clayton att. /Since local price discrimi- 
 nations, tying contracts, and factors' agreements, when they tend 
 to suppress competition, are unquestionably "unfair methods of 
 competition in commerce," the Trade Commission act overlaps the 
 Clayton act to this extent, and makes the^^ecial prohibition of 
 these particular practices quite unnecessary .___^? 
 ^ But unfair competition includes^^tjier j^ings as well. The use 
 of bogus competitive companies, espionage of competitors' busi- 
 nesses, coercion in various forms, blacklists and whiteHsts, the 
 securing of railroad rebates and kindred favors — these and other 
 practices have been used in the suppression of competition and have 
 been held to be evidence of monopolistic intent in cases brought 
 under the Sherman act.' So far as such methods are used in con- 
 nection with an endeavor to establish monopoly, they are illegal 
 under that statute. Or, more accurately, they are held to be part and 
 parcel of a scheme, an effort, or an achieved result, which, taken as 
 a whole, is itself illegal. Where such practices are found to have 
 been used in this iUggal way their continuance is often enjoined in 
 the courts' decrees. ; 
 
 I So far as this general aspect of unfair competition is concerned, 
 the Trade Commission act, like the Clayton act,3dds nothing to 
 the older statute except a new form of procedure^ There is the 
 
 ' For a good account of the various forms of unfair competition which have figured 
 in such cases see William S. Stevens, "Unfair Competition," Political Science Quarterly, 
 XXIX (June, September, 1914), 282, 460. 
 
430 JOURNAL OF POLITICAL ECONOMY 
 
 difference, however, that it makes specific practices illegal,' while 
 the Sherman act condemns the general purpose of the combination 
 which utilizes such practices. This difference is probably not of 
 much practical consequence. In passing upon the validity of 
 orders of the Commission against unfair practices, in cases where 
 the element of monopolizing is present, the courts will of necessity 
 fall back upon precedents established in cases under the Sherman 
 law. There is of course a possibility that there may come to be 
 some broadening of the notion of what constitutes unfair competi- 
 tion as a phase of monopolizing, but, on the other hand, not all of 
 the practices now reached by the Sherman act can be made to 
 appear as unfair methods of competition when isolated and de- 
 tached from the general business schemes of which they are parts.^ 
 If in some cases the new procedure will make it possible to reach the 
 monopolizing process in its early stages, much will have been 
 gained. But it is not to be expected that all monopolistic combina- 
 tions can be dealt with effectively in this way. There will still be 
 a field for the Sherman act. 
 
 The prohibition of unfair methods of competition in commerce 
 is not, however, limited to cases in which the use of such methods 
 may tend to establish a monopoly. In this respect the Trade Com- 
 mission act differs from the Clayton act. The Trade Commission 
 is virtually empowered to establish, through such of its orders as 
 commend themselves to the courts, definite standards of fair com- 
 petition for all business undertakings engaged in interstate and 
 
 ' They are made illegal, but not criminal, for no penalties are provided. 
 
 = In the "naval stores case" {Nash v. United States, 229 U.S. 373), in which an 
 indictment for a conspiracy to monopolize trade by means of various unfair practices 
 was sustained by the Supreme Court, the defense maintained that the individual acts 
 contemplated were not in themselves illegal. Justice Holmes, delivering the opinion 
 of the court, said: "As to the suggestion that the matters alleged to have been con- 
 templated wovdd not have constituted an offense if they had been done, it is enough to 
 say that some of them conceivably might have been adequate to accomplish the result, 
 and that the intent alleged would convert what on their face might be no more than 
 ordinary acts of competition or the small dishonesties of trade into a conspiracy of 
 wider scope, as has been explained more than once. Of course this fact calls for 
 conscience and circumspection in prosecuting officers, lest the unfounded charge of a 
 wider purpose than the acts necessarily import convert what at most would be small 
 local offenses into crimes under the statutes of the United States." 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 431 
 
 foreign commerce. This may easily prove to be the most important 
 innovation in the new legislation. The full significance of this 
 provision does not seem to have been brought out in the debates in 
 Congress, where most of the emphasis appears to have been put upon 
 its bearing on the trust problem. In the debates "unfair compe- 
 tition" was more than once identified with "restraint of trade." 
 But this definition of imfair competition cannot be squared with 
 what precedents there are for the interpretation of the two phrases, 
 although undoubtedly the two overlap to some extent. 
 
 In a large sense, of course, every general statute regulating the 
 conditions under which business is carried on helps to fix a level for 
 competition. It has always been recognized that labor laws, pure- 
 food laws, and laws providing for public supervision of weights and 
 measures, although primarily for the benefit of employees or con- 
 sumers, have also an important effect in weakeniag the power of 
 unscrupulous competitors. Furthermore, the whole body of law 
 affecting the relations between business men and those with whom 
 they have dealings goes far to establish the rules under which com- 
 petition must be conducted. But the law of unfair competition, 
 taken in a narrower sense, bears directly upon the relations between 
 business men as competitors; that is, upon the methods and prac- 
 tices used to gain trade. It establishes the lines beyond which one 
 cannot go in the attempt to divert trade from one's competitors. 
 Lacking statutory definition,' it comprises a variety of things found 
 in different branches of the law. Combinations or conspiracies to 
 injure or destroy a competitor's trade by the use of methods that 
 would in themselves be legal, save for the fact of the combination 
 or conspiracy, are, for example, to be put under this general head. 
 And the employment of ordinary forms of competition by a com- 
 bination or even by an individual may be held to be illegal if 
 inspired by the malicious purpose of injuring a particular under- 
 taking and if not designed to promote the legitimate interests of 
 
 ' The "unfair competition" statutes found in a number of the states relate only 
 to price discriminations. They are in general similar to the provisions of the Clayton 
 act bearing upon the same matter, except that the state laws apply to aU price dis- 
 criminations made with the intent to injure a competitor, even where there is no 
 purpose to establish a monopoly. These statutes are reprinted in Laws on Trusts and 
 Monopolies, compiled by Nathan B. Williams for the use of the House Judiciary Com- 
 mittee (Washington, 1914). 
 
432 JOURNAL OF POLITICAL ECONOMY 
 
 the persons employing such methods/ These common-law doc- 
 trines have a wider application than that suppression of competi- 
 tion or "monopolizing" which is condemned by the Sherman act, 
 for they do not involve the necessity of showing an intent to 
 monopolize. Not the prevention of monopoly, but the protection 
 of the individual business undertaking, is their controlling purpose. 
 The kind of competition which they condemn need not have for 
 its objective the estabhshment of monopoly; it is sufi&cient if its 
 direct and primary purpose is to injure or destroy. 
 I Then there is the very different sort of competition which is 
 condemned, not because of its general purpose, but because of the 
 methods which it employs. Inducing a competitor's customers to 
 break their contracts with him is a case in point.- But more 
 important are such things as libelous statements and fraudulent mis- 
 representations. By far the largest number of cases in the general 
 field of the law of unfair competition have to do with fraud, and 
 more especially with methods calculated to enable the offender to 
 trade upon the established good will of a competitive undertaking. 
 The use of trade-marks, brands, firm names, packages of a particular 
 form or appearance, etc., for the purpose of misleading the con- 
 sumer in respect to the identity of the firm or the origin of the goods 
 is the most common offense of this sort.' 
 
 I have made this cursory and incomplete review of the general 
 meaning of "unfair methods of competition" merely to suggest the 
 extent to which the Trade Commission act seems to pass beyond 
 what has been the accustomed province of anti-trust legislation. 
 But it is none the worse on that account. Aside from the additional 
 protection which the Commission's power in these matters will give 
 to the rights of business men and of consumers, anything that will 
 
 " For a general review of the law on these points see Bruce Wyman, The Control 
 of the Market, chaps, ii, iii, v. See also E. S. Rogers, "Predatory Price Cutting as Un- 
 fair Trade," Harvard Law Review, XXVII (December, 1913), 139. 
 
 ' Wyman, chap. iii. 
 
 3 For an excellent popular account of these matters see E. S. Rogers, Good Will, 
 Trade Marks, and Unfair Trading (Chicago, 1914). Mr. Rogers has discussed the 
 same subject in a series of papers. See Illinois Law Review, III (April, 1909), 551; 
 Michigan Law Review, VIII (June, 1910), 613; IX (November, 1910), 29; XI (March, 
 1913), 3S8. 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 433 
 
 raise the general level of competitive standards must be welcomed 
 by those who believe in the retention of competition as a funda- 
 mental economic mstitution. Moreover, it is to be expected that 
 the fact that the statute's condemnation of unfair competition is 
 not made to depend on a proved purpose to create a monopoly will 
 make it a more effective weapon against monopoly itself in its early 
 stages. In this way it may prove a valuable supplement to the 
 Sherman act.' 
 
 It should not be imagined that the Commission will be able to 
 create offhand a general code of definitions of unfair practices, or 
 that it can make substantial additions to the existing law on the 
 subject. Its orders are subject to review by the courts on all 
 matters of law, and the courts will, of course, define "unfair 
 methods of competition" in the Hght of existing judicial precedents. 
 The law will grow, as other laws grow, only as individual cases with 
 new characteristics are brought under it. But as to the wisdom of 
 the general policy it embodies there can be, I imagine, no difference 
 of opinion.^ 
 
 The duties of the new Federal Trade Commission are not 
 limited to issuing orders against the use of unfair methods of com- 
 petition. Composed of five members holding office for seven 
 
 ' While only a few countries have taken a position as definitely opposed to indus- 
 trial combination as has the United States in the Sherman act, a number of countries 
 have preceded us in adopting statutory declarations against unfair competition. A 
 thing very commonly prohibited is the factors' agreement in its various forms. See, 
 for example, the statutes of Australia, New Zealand, and Canada, reprinted in 
 Williams' Laws on Trusts and Monopolies. The recent comprehensive statutes of 
 Germany (1909) and Denmark (191 2) relating to unfair competition are reprinted in 
 Hearings before the House Committee on the Judiciary, 63d Congress, 2d session, 
 on Trust Legislation, pp. 1491, 1495. The most interesting departure in both 
 statutes is the careful limitation and regulation of price-cutting "sales." An account 
 of the operation of the German law is given in a British consular report (Cd. 6006-2) . 
 For a fuller analysis see A. Pinner, Gesetz gegen den unlauteren Wettbewerb (Berlin, 
 1910). The latest account of the general status of the law of unfair competition in 
 continental Europe is Charles Chenevard's Traite de la concurrence delay ale (2 vols., 
 Geneva and Paris, 1914). 
 
 ' It is possible that either the Commission or the courts will refuse to give so 
 broad a meaning as I have suggested to the phrase "unfair methods of competition." 
 But it can hardly be expected that it will not be held to cover much more than the 
 types of unfair competition which have figured in cases under the Sherman act. 
 
434 JOURNAL OF POLITICAL ECONOMY 
 
 years and receiving salaries of $10,000 each, it falls heir to the 
 corps of employees and the unfinished tasks of the Bureau of Cor- 
 porations. 
 
 That Bureau, estabUshed by Act of Congress in 1903 in the 
 Department of Commerce and Labor, was authorized "under the 
 direction and control of the Secretary of Commerce and Labor" to 
 investigate the transactions of any corporation or combination 
 engaged in interstate commerce, with the exception of common 
 carriers. Its powers in the way of compelling testimony and the 
 production of books and papers were identical with those of the 
 Interstate Commerce Commission. It was also authorized to 
 gather and publish "useful information" concerning corporations 
 engaged in interstate commerce. The primary purpose of its special 
 investigations of particular corporations and combinations, as stated 
 in the statute creating it, was "to gather such information and data 
 as will enable the President of the United States to make recom- 
 mendations to Congress for legislation for the regulation of 
 commerce," and the President might decide what part of its 
 information should be made public. Established at the behest 
 of President Roosevelt, it was to be an arm of the executive 
 rather than of the legislative or judicial branch of the govern- 
 ment. In addition to performing the duties with which it was 
 legally charged, it has co-operated with the Department of Justice 
 in various ways, and some of its investigations have been under- 
 taken at the special authorization of Congress. 
 
 The new Commission is not a bureau of any department, but 
 has an independent status, like that of the Interstate Commerce 
 Commission. Some of its work, however, is as a virtual auxiliary 
 of the Department of Justice. At the request of the Attorney- 
 General it is to investigate any corporation alleged to be violating 
 the anti-trust laws, and to make recommendations for the readjust- 
 ment of its business. This is a wise provision for informal adjust- 
 ments like those which are so important a part of the work of the 
 Interstate Commerce Commission. In suits in equity brought 
 under the anti-trust acts the Commission may be asked by the 
 court to prepare an appropriate form of decree, which is, of course, 
 subject to rejection or change by the court. The importance of 
 
SHERMAN ACT AND NEW ANTI-TRUST LEGISLATION 435 
 
 this provision is in its bearing upon the outcome of dissolution pro- 
 ceedings under the Sherman act. Since the American Tobacco case, 
 it has been recognized that the drafting of a wise plan of reorganiza- 
 tion for an offending combination may be an exceedingly difl&cult 
 matter, requiring not only care and judgment, but also a large 
 amount of technical information about the general conditions of 
 the industry affected. Furthermore, the Commission is authorized 
 to make investigations of the manner in which decrees in suits under 
 the anti-trust acts are carried out. This provision should add much 
 to the efficiency of the operation of the Sherman act. 
 
 Like the former Bureau of Corporations, the Commission may 
 investigate and report upon the affairs of industrial and trading 
 corporations engaged in interstate commerce, and it may be asked 
 by the President or either House of Congress to report upon any 
 alleged violation of the anti- trust acts. It has the further power 
 to require annual or special reports from interstate corporations in 
 such form and relating to such matters as it may prescribe. The 
 information it obtains may be made public at its own discretion, 
 "except trade secrets and names of customers." One effect of this 
 provision, it may be hoped, will be to give students of corporation 
 problems a very much more adequate body of authentic and appo- 
 site information than they have yet had. If the power to require 
 the use of uniform accounting systems is later given to the Com- 
 mission, the value of this information will be distinctly enhanced. 
 The Commission's powers to secure the testimony of witnesses and 
 the production of books and papers seem entirely adequate, and 
 are similar to those of the Interstate Commerce Commission. 
 
 It is both difficult and hazardous to pass a general judgment 
 upon legislation which comprises so many different provisions and 
 which reaches into fields so new as do these two statutes. But 
 unless the foregoing analysis is altogether mistaken the two cannot 
 be joined for either praise or condemnation. The anti-trust sec- 
 tions of the Clayton act, in the opinion of the present writer, are 
 bungling and generally futile. There is a chance that, at the worst, 
 they may make enough trouble to delay the enaction of the badly 
 needed federal statute dealing thoroughly and systematically with 
 
436 JOURNAL OF POLITICAL ECONOMY 
 
 the promotion, organization, and management of corporations 
 engaged in interstate commerce. At best, so far as I can see, they 
 will be ineffective. The Federal Trade Commission act is a statute 
 of a very different type. It introduces a method of dealing with 
 the admitted evils of unfair competition modeled upon what has 
 proved a successful method of dealing with railroad discriminations. 
 The new machinery it furnishes for the enforcement of the Sherman 
 act is of a kind which experience has shown to be needed. It makes 
 a beginning, at least, in providing for adequate federal statistics of 
 industrial corporations. I see no reason why it should not prove a 
 highly serviceable addition to the nation's industrial code. 
 
 Allyn a. Young 
 
 CoENELL University 
 
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